An estimated 50 million Americans use Social Security benefits per year, with around 40% relying on Social Security to make up 90% of their income after failing to build up sufficient savings.
That makes it a vital support system within the United States and a center of domestic policy, but interestingly, the amount claimed depends on the year you were born and the year you chose to retire, so how does it work?
It all depends on the Full Retirement Age, which is the age that the federal government allows you to begin receiving 100% of your Social Security benefits allowance. For those born between 1938 and 1959, the FRA is reached at the age of 66. For those born in 1960 or after, it is 67.
But what if someone does want to call their career quits at the age of 65 and enjoy retirement early? Then, their Social Security allowance will change by reducing, and it can be a noticeable difference in a challenging economic climate.
For example, someone born between 1938 and 1959 will see their income at a maximum of 93.3% of the full benefit. On the other hand, someone born in the 1960s or present will see their income cut to 86.7%.
That means if someone is entitled to $10,000 per month at the Full Retirement Age, then they will lose out on $670 dollars per month if they were born before 1960, whilst someone born after will lose $1,330 per month.
How Does The SSA Calculate My Social Security Allowance?
Monthly benefits are based upon the average indexed monthly earnings (AIME) of your highest-earning 35 years of employment, which the Social Security Administration then uses to predict your Primary Insurance Amount (PIA) to give you the Social Security estimate.
AIME adjusts for inflation, so that means $10,000 in 1960 would not be the same as $10,000 in 2024, thus allowing the SSA to predict how your earnings have changed due to the impact of rising inflation.
So, to work out how much you would earn, add up the 35 highest salaries you have ever collected and then divide the combined total by 420 (the number of months in 35 years), and this will provide you with your AIME.
For example, if you made a million dollars throughout those 35 years, then you are entitled to an AIME allowance of $2380 per month at Full Retirement Age. That’s how you can predict your Social Security.
You can then use online calculators to see how much you would get if you chose to retire at the age of 65 compared to 66 or 67 and make an informed decision based on the information provided to you.
For example, if you earned $100,000 as an annual income and you plan to retire at the age of 65 and you are currently 65, Social Security could give you $37,000 per year ($3000 per month).
However, if you wait two more years until you reach the full retirement age of 67, then you could pick up an extra $5000 based on the same annual income.
