Do Social Security Benits Go Up if You Do Not Continue to Work
Retirement brings a lot of exciting life changes. In addition to much more free time than you're probably used to, you'll have ample opportunities to pursue hobbies, volunteer or travel the world like you've always dreamed of doing. But in addition to these new possibilities, retiring can also bring changes to your finances. You won't be earning income in the same way, and this can make creating and sticking to a budget an even more important reality.
Part of successfully budgeting involves knowing how much money you'll have available to spend — and part of knowing how much you'll be bringing in during retirement involves understanding your Social Security payment amounts. There are three methods of estimating how much money you'll receive in Social Security benefits each month after retiring. While these processes won't give you exact amounts, you'll end up with ballpark figures that help you draft a workable retirement budget. Here's how you can get started estimating.
If you visit a Social Security Administration (SSA) field office, you can ask for a current estimate of your Social Security benefits. The SSA maintains up-to-date records detailing how much money you've contributed towards Social Security in your working life, and it also uses this information to determine (and keep records of) the monthly funds you're eligible to receive as retirement payments. Although many people are interested in accessing this information in relation to their retirement benefits, this same system is how the SSA calculates your monthly payments if you need to collect disability before retiring.
You can request this statement at any time. Visit your local Social Security office, and bring documentation of your identity. The statement you'll receive will be accurate based on current information, but your actual monthly retirement benefit will likely be different — you'll earn more benefits the longer you work. This is an ideal option if you're nearing retirement age because the information will more accurately reflect what you'll receive after leaving the workforce.
Use the SSA's Online Benefits Calculator
The SSA provides a variety of calculators to help you plan for all of the unique situations that come with retirement. Each of these calculators is connected to the mySocialSecurity website, SSA.gov. When you establish login credentials for mySocialSecurity, all the information related to your Social Security deductions and benefits is easily accessible online. You can even get the same statements online that you can request from your local field office.
When you use the calculators on this website, you'll receive accurate estimates based on the number of credits you have and the amount of money you've contributed towards Social Security. One calculator allows you to estimate your monthly retirement benefits at different retirement ages. If you don't want to create a mySocialSecurity account, you can use the site's Quick Calculator, but the results are less specific.
Because these estimates are based on your contributions from Social Security payroll deductions, the SSA's online benefits calculators are some of the most effective ways to estimate your retirement benefits. The highly variable factors in the calculations involve annual cost of living adjustments based on inflation and laws that could change before your retirement date.
Calculate Your Benefits Yourself
Calculating your Social Security benefits on your own is possible, and it involves a few different factors. First, you need your wage information, and you need to know how much money you've contributed to Social Security. You also need charts of indexing factors published by the SSA to determine how inflation impacts what you've earned and contributed in the past. Finally, you need a good idea of the age you plan to start requesting benefits.
Start by determining which 35 years of your income were the highest. It's fine to estimate if you haven't worked for 35 years yet. Then, multiply the income for each one of those years by the applicable indexing factor based on the year you plan on retiring. (This is adjusting each year's income for inflation.) Next, add all 35 indexed years together. Divide that sum by 420 (35 years x 12 months) to come up with your average indexed monthly earnings (AIME).
Take that monthly number and apply the bend points to it. Social Security works so that people who earned the least during their working years get a higher percentage of their own average indexed monthly income than people who earned more. For example, if your AIME is $5,000, you might only receive a quarter of that, but if your AIME is $2,000, you may receive 80% of that. You get 90% of all money in your AIME up to the first bend point. Then, you get 32% of the money between the first and second bend points. Next, you earn 15% of the money after the second bend point. The sum of all those percentages is your estimate for monthly retirement benefits.
You'll want to enter retirement with a plan about how you'll pay for all of your expenses while you aren't working. Understanding your Social Security benefits is one aspect of planning for retirement. If you understand how much money you're likely to earn from your SSA benefits, you have a clearer path for planning how much money you need to earn from other investments to live the lifestyle you want in retirement.
Because Social Security deductions are based on the amount of money you earn, the only way to contribute more to Social Security is to earn more. However, other retirement savings accounts do allow for increasing contributions. You can also invest in appreciable assets, like real estate and stocks, to earn money during retirement.
Estimating your Social Security benefits can also help you plan when to retire. In general, you earn more in monthly benefits the later you retire. You have the option of retiring at age 62. If Social Security benefits will be your sole or main source of retirement income, it's very important to understand how much you'll receive each month before deciding to retire. You may decide to continue working past age 62 to capitalize on the amount of Social Security you'll receive.Social Security benefits aren't guaranteed, and there's no way to predict how drastically legal changes may impact what you'll receive by the time you retire. Social Security benefits are one important method of earning money during retirement, but you should also look into other, more predictable, forms of investment to achieve financial security when you stop working.
Source: https://www.askmoney.com/investing/estimate-social-security-benefits?utm_content=params%3Ao%3D1465803%26ad%3DdirN%26qo%3DserpIndex&ueid=327507a2-1632-48f5-9f15-5680dcb8d5de
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