December 12, 2017
Maximizing Social Security
Understanding Social Security: How It’s Calculated and When to File
Last year, 66 million Americans received Social Security benefits, with 5.5 million being new applicants. For over half of them, Social Security made up at least 50% of their annual income. Whether you’re receiving benefits now or planning for the future, Social Security will play a critical role in your retirement strategy.
How Your Social Security Benefit Is Calculated
The Social Security Administration (SSA) calculates your benefit based on your highest 35 earning years. Your lifetime earnings are indexed to adjust for wage inflation, with maximum earnings cap each year. The indexed earnings are totaled and divided by 420 (the number of months in 35 years) to determine your average indexed monthly earnings (AIME).
If you continue working past retirement age and earn more than your lowest earning years, your benefit amount may increase. It’s crucial to check your estimated benefits using online tools or by accessing your personal Social Security statement at ssa.gov.
| 35 Best Earning Years | Year | Wages | |
|---|---|---|---|
| 1981 | $46,577.63 | Removed | |
| 1982 | $48,491.98 | Removed | |
| 1983 | $50,485.00 | ||
| 1984 | $52,559.93 | ||
| 1985 | $54,720.14 | ||
| 1986 | $56,969.14 | ||
| 1987 | $59,310.57 | ||
| 1988 | $61,416.10 | ||
| 1989 | $63,596.37 | ||
| 1990 | $65,854.04 | ||
| 1991 | $68,191.86 | ||
| 1992 | $70,612.67 | ||
| 1993 | $72,342.68 | ||
| 1994 | $74,115.07 | ||
| 1995 | $75,930.89 | ||
| 1996 | $77,791.20 | ||
| 1997 | $79,697.09 | ||
| 1998 | $81,679.66 | ||
| 1999 | $83,650.08 | ||
| 2000 | $85,669.51 | ||
| 2001 | $87,413.50 | ||
| 2002 | $89,161.77 | ||
| 2003 | $90,945.00 | ||
| 2004 | $92,763.90 | ||
| 2005 | $94,619.18 | ||
| 2006 | $96,511.56 | ||
| 2007 | $98,441.80 | ||
| 2008 | $100,410.63 | ||
| 2009 | $102,418.84 | ||
| 2010 | 104,467.22 | ||
| 2011 | $1406,556.57 | ||
| 2012 | $108,687.70 | ||
| 2013 | $110,861.45 | ||
| 2014 | $113,078.68 | ||
| 2015 | $115,340.25 | ||
| 2016 | $117,647.06 | Added | |
| 2017 | $120,000.00 | Added |
When to File for Social Security Benefits
Your full retirement age (FRA) is determined by your birth year and ranges from 65 to 67. However, you can begin receiving benefits as early as 62 or delay them until age 70. The timing of your claim significantly impacts the amount you receive:
-
Claiming at 62: Results in a 30% reduction in benefits.
-
Claiming at FRA (66-67): Provides full benefits.
-
Delaying until 70: Increases benefits by approximately 8% per year, leading to significantly higher monthly payments over time.
Because Social Security benefits typically adjust for inflation, delaying benefits can lead to a much larger lifetime payout.
Spousal and Survivor Benefits
Married couples should consider how Social Security will impact both spouses. If one spouse has significantly lower lifetime earnings, they may receive up to 50% of the higher-earning spouse’s benefit. Additionally:
-
Divorced spouses may be eligible for benefits based on their ex-spouse’s record if they were married for at least 10 years.
-
When one spouse passes away, the surviving spouse will receive the larger of the two benefits but not both.
-
Delaying Social Security benefits can provide higher survivor benefits, making it a strategic decision for legacy planning.
Final Thoughts
Before deciding when to claim Social Security, consider how it fits into your overall retirement plan, including Medicare filing strategy, as well as how it fits into your overall tax profile. Consulting a financial professional can help ensure you make the best decision for your long-term financial security.
This website commentary reflects the personal opinions and analyses of Gainplan LLC employees. It does not describe Gainplan LLC’s advisory services or client investment performance. Views in the commentary may change anytime without notice. Nothing here constitutes investment advice, performance data, or recommendations for specific securities, transactions, or strategies. Mentioning a security or its performance is not a buy or sell recommendation. Gainplan LLC uses various investment strategies, not all discussed here. Investing in securities carries risks, including loss. Past performance does not guarantee future results.
Gainplan LLC provides links to third-party websites for convenience. Clicking these links leaves our website. Gainplan LLC is not responsible for errors, omissions, or content on third-party sites and does not necessarily endorse their information. Users accessing these sites must follow their terms and assume all risks.