If you’re like most Americans, you’re almost certainly a couple of years behind on your retirement savings. If so, you’re also almost certainly doing the math right now to figure out how much you could get from Social Security. A practical base case is how much you’d get with a salary of $75,000 a year.
First, you need to know the requirements to qualify for Social Security. If you were born before 1955, the retirement age is 66; if you were born after that year, you can retire at 67. The minimum age at which you can start receiving Social Security is 62, but that would reduce your pension.
Age isn’t the only requirement. You also must attain at least 40 work credits to qualify for the benefit. Credits depend on how long you’ve worked contributing to Social Security and the salary you have received. A $75,000 wage gives you about four credits per year.
The formula for calculating your benefits is complicated. Here’s a breakdown of the basics.
How to calculate your pension
The Social Security Administration (SSA) initially looks at the last 35 years of your work history to determine your average wage, adjusted for inflation. If you worked more than 35 years, the SSA discards the years when your wages were lower and averages the rest. If you worked less time, your total wages over that time are still averaged out by 35.
If your annual salary is $75,000, you earn $6,250 a month. In your pension, the SSA pays you 90% of the first $1,115 of your indexed monthly wage. That means you’ll receive $1,003.50 a month.
After those $1,115, the SSA pays you 32% of each dollar up to a maximum of $6,721 monthly. In the example at hand, you subtract the first figure from your average monthly salary, which leaves you with $5,135. According to the formula described above, you would receive another $1,643.20 a month.
Both amounts combined give a monthly total of $2,646.70 a month, or $31,760.40 a year, if you wait until your full retirement age.
Can I increase my Social Security benefits?
Social Security is not a one-size-fits-all amount. Other factors decrease or increase your pension. If you decide to retire at the minimum age of 62, your pension will be reduced by 30%. On the other hand, if you retire after age 67, the SSA will give you an 8% bonus for each year up to age 70.
Still, if your average salary before retirement was $75,000 a year, Social Security will not be enough to maintain your standard of living. A good savings and investment strategy will help you maximize your post-retirement income so you can live worry-free in your golden years.