Social Security Part 4: Benefits – How Much Do You Get?

You won’t get rich on Social Security benefits; the estimated 2019 benefits from the Social Security Administration are below. Social Security helps, but it will not typically provide all the money that is needed in retirement.  Currently, the Social Security Administration estimates that Social Security (retirement benefits) replaces about 40% of an average (middle income) wage earner’s income after retiring; retirees generally need at least 70% of work income to live comfortably in retirement.

The Social Security Administration uses a pretty elaborate formula to determine your retirement benefit. Basically, what your benefit is at retirement is a function of what you earned over your lifetime. Here’s a brief summary of attempting to explain the steps as to how a retirement benefit (officially called the “primary insurance amount”) is calculated by Social Security.

1. Your historical actual earnings are adjusted or “indexed” to make past earnings reflect what they would be in current dollars. (Only earnings at or below the salary limit for Social Security taxes are considered each year.)
2. Then Social Security calculates your average indexed monthly earnings (AIME) during the 35 years in which you earned the most. The calculation is done by adding all 35 years of indexed earnings together, dividing by 35 to find your annual average, and dividing this result by 12 to determine your lifetime monthly average.  
3. A fairly complex formula is applied to these earnings to arrive at your basic “full” benefit. This is how much you would receive at your full retirement age — 65 or older, depending on your date of birth as explained earlier. The formula used depends on the year that a person becomes eligible to receive retirement benefits (when they turn 62).
4. For 2019, the retirement benefit is calculated as:
   1. 90% of the first $926 of a person’s AIME, plus
   1. 32% of AIME greater than $926 but less than $5,583
   1. 15% of AIME greater than $5,583

Hey, it’s complicated. A little easier approach for estimating your retirement benefit is to create an online account directly (called “my Social Security”) with the Social Security Administration. The Social Security Administration currently mails Social Security Statements to workers age 60 and over who aren’t receiving Social Security benefits and do not yet have a “my Social Security account”; statements are mailed three months prior to a person’s birthday

Creating a my Social Security account with the Social Security Administration: Create a my Social Security account

An explanation from Social Security as to how they calculate your retirement benefit:
From SS: How Your Retirement Benefit is Calculated
From SS: Retirement Benefit Calculation Example

For a reference as to what benefits are typical, listed below are the estimated averages for 2019 Social Security benefits as indicated by the Social Security Administration.

Estimated Average 2019 monthly Social Security benefits

• Retired worker: $1,461
• Retired worker with an aged spouse: $2,448
• Disabled worker: $1,234
• Disabled worker with a young spouse and one or more children: $2,130
• Aged widow or widower: $1,386
• Young widow or widower with two children: $2,876

The maximum possible Social Security payment for a worker (a worker that reached the maximum taxable amount of earnings each year and signs up at full retirement age) is $2,861 per month in 2019.  

CBEI Blog Series: Social Security
Part 1: How it Works and How it is Funded (or not)
Part 2: Who Gets Benefits?
Part 3: How Are Programs Funded?
Part 4: Benefits – How Much Do You Get?
Part 5: Financial Status of Programs
Part 6: The Future