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- 1 What Is Minimum Social Security Benefit At Age 65
- 2 Social Security Benefits Are Modest
- 3 The Maximum Social Security Benefit In 2024
What Is Minimum Social Security Benefit At Age 65
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Here’s The Average Social Security Benefit At Ages 62 And 66
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Social Security benefits have always been an important part of retirement planning, and Americans rely on monthly benefits as a primary source of income in their retirement years. According to the National Social Security Academy, Social Security is the only source of income for about 20 percent of Americans age 65 and older, while more than 80 percent of people in that age group receive a Social Security check each month.
Experts often say that pension plans are like a three-legged stool, with the legs on the stool being Social Security, employer-sponsored pension funds and personal savings. Given how important Social Security is to retirees, it’s important for you to know exactly how your benefits will be calculated.
Social security has two main criteria for whether you will receive a pension and how much it will be if you are eligible:
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Here’s how Social Security calculates each of these items. (This calculator can help you estimate your Social Security check.)
To qualify for Social Security benefits, you must earn 40 credits if you were born after January 2, 1929. To earn one credit in 2024, you must have wage and self-employment income of $1,730. You can earn up to four credits per calendar year. You must earn $6,920 in a year to get the full four credits, and you have a full year to earn that much, although you can earn it at any time during the tax year. So to get 40 credits, you must meet minimum wage or self-employment income for at least 10 years, though not necessarily consecutively.
“If you’re self-employed, you earn Social Security credits the same way as an employee,” says certified financial planner Alexei Bulankov, retail advisor, East West Bank.
Once you have earned 40 credits, additional credits will not increase your benefit payments. Instead, your pension is based on your earnings during your working years.
Social Security Benefits Are Modest
The amount you will receive at full retirement age, which varies from 65 to 67 depending on your year of birth, is called the Primary Insurance Amount or PIA. (Here are the average Social Security checks.)
The formula for calculating your PIA is based on your Average Indexed Monthly Earnings, or AIME, for your 35 highest earning years after age 21, up to your Social Security Wage Base. In 2024, the basis is $168,600, up $8,400 from last year. The wage base is the maximum amount of income from which social security contributions must be paid.
Workers must pay 6.2 percent up to this earnings level, and employers add another 6.2 percent. If you are self-employed, you pay both parts of your payroll tax to finance social security.
“If someone worked (less than) 35 years, the missing years are filled with zeros. If they have worked more than 35 years, only the highest earning years will be considered,” says Charles C. Scott, founder and president of Pelleton Capital Management in Scottsdale, Arizona.
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Earnings over a worker’s 35 highest-earning years are added together and indexed for inflation, and the result is the AIME, Bulankov said.
The AIME “is divided into three segments called inflection points (which are adjusted for inflation annually) that give you the worker’s PIA,” Scott said.
The following is the curve for calculating employee benefits in 2024. Benefits are the sum of the following elements:
For example, a 62-year-old woman born in 1962 whose total indexed earnings in the 35 highest earning years was $2.5 million would have an AIME of $5,952.38 ($2,500,000 / 420 months of employment = $5,952.38).
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The benefit amount is rounded down to the nearest cent, so this worker’s PIA, which is the amount he would receive if he waited until full retirement age (age 67) to receive Social Security, is $2,585.68. However, if the retiree chooses to take early retirement, this amount can be reduced by as much as 30 percent—so it’s important to understand the best age to receive benefits.
Several factors can change the amount of your entitlement, such as choosing to receive benefits before your full retirement age or deferring benefits after your full retirement age. Government employees who receive a pension may not be eligible for Social Security.
You can receive daily allowance from the age of 62, but you will receive reduced daily allowance if you apply for daily allowance before full retirement age. If you wait until full retirement, your monthly benefits will increase until you turn 70.
“Taking Social Security early results in a permanent reduction in wages compared to your benefits at full retirement age,” warns Greg McBride, CFA, Financial Analyst.
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“Even better, delaying Social Security each year past full retirement age would result in an 8 percent increase at age 70 — a permanent pay raise, if you will, beyond the benefits you would receive at full retirement age,” McBride said.
Calculating your Social Security check can be complicated, but understanding how your benefits are determined can help you plan for retirement. The Social Security Retirement Estimator can help you calculate your benefits. If you contact Social Security, you can receive a complete report of your income
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