Your Retirement Benefit: How It Is Figured

As you make plans for your retirement, you may ask, “How much will I get from Social Security?” There are several ways you can find out. Social Security sends a yearly Social Security Statement to everyone age 25 or older who has paid Social Security taxes and has not yet received benefits. You should receive a Statement about three months before your birthday each year.

You also can request a Statement by ­calling Social Security and asking for a form SSA-7004, Request for Social Security Statement, or by downloading the form at www.socialsecurity.gov/online/ssa-7004.html on the Internet. Or, you can use the Benefits Planner at www.socialsecurity.gov/planners to estimate your benefit.

Many people wonder how their benefit is ­figured. Social Security benefits are based on your lifetime earnings. Your actual earnings are adjusted or “indexed” to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. We apply a formula to these earnings and arrive at your basic benefit, or “primary insurance amount” (PIA). This is how much you would receive at your full retirement age—65 or older, depending on your date of birth.

On the page below is a worksheet you can use to estimate your retirement benefit if you were born in 1946. It is only an estimate; for specific information, talk with a Social Security representative.

Contents

Factors that can change the amount of your retirement benefit

Contacting Social Security

Estimating your Social Security retirement benefit

• You choose to get benefits before your full retirement age.
  You can begin to receive Social Security benefits as early as age 62, but at a reduced rate. Your basic benefit will be reduced by a certain percentage if you retire before reaching full retirement age.

• You are eligible for cost-of-living benefit increases starting with the year you become age 62.
  This is true even if you do not get benefits until your full retirement age or  even age 70. Cost-of-living increases are added to your benefit beginning with the year you reach 62 up to the year you start getting benefits.

• You delay your retirement past your full retirement age.
  Social Security benefits are increased by a certain percentage (depending on your date of birth) if you delay receiving benefits until past your full retirement age. If you do so, your benefit amount will be increased until you reach age 70.
  

• You are a government worker with a pension. If you also get or are eligible for a pension from work where you did not pay Social Security taxes (usually a government job), a ­different formula is applied to your average indexed monthly earnings. To find out how the Windfall Elimination Provision (WEP) affects your benefits, go to www.socialsecurity.gov/gpo-wep and use the WEP online calculator. You also can review the WEP fact sheet to find out how your benefit is figured. Or, you can contact Social Security and ask for Windfall Elimination Provision (Publication No. 05-10045).

You may find a more detailed explanation about how your retirement benefit is calculated in the Annual Statistical Supplement, 2006, Appendix D. The publication is available on the Internet at www.socialsecurity.gov/policy/docs/statcomps/supplement or you can order a paper copy by writing to the Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954.