How Are Social Security Benefits Calculated?


Most people ask, “How much will my Social Security Retirement Benefits (SSRB) be?” That depends on how much you earned while working and at what age you decided to start collecting SSRB. Higher lifetime earnings means higher SSRB, but collecting SSRB before one’s full retirement age will result in reduced benefits. Here are the full retirement ages by birth year:



It’s important to note that people who were born on January 1 of any year should refer to the previous year.

Based on the Social Security Administration’s online quick benefits calculator, let’s look at a person born on January 1, 1950 with current earnings of $150,000.** If this individual retired at age 63 with full benefits age being 66, the estimated monthly benefit would be $1,935. If retirement was opted for at the full age of retirement, 66, the estimated monthly benefit would be $2,464, $529 more than the benefit taken at 63. Lastly, if this retiree chose to claim benefits at age 70, the estimated monthly benefit would be $3,322, $858 more than the benefit received at age 66.

Ignoring the personal reasons for retiring, this hypothetical person may undertake a purely mathematical analysis to determine which option provides the greatest benefits over life.*** Using an estimated life expectancy of 84, as well as a contingent early death at age 75, the difference in total lifetime benefits may be computed as follows:



As these calculations demonstrate, you should consider your own unique situation, including estimated life expectancy, age, health, retirement needs, and other personal factors, when deciding at what age to start collecting SSRB. A shorter life expectancy may affect your decision to start collecting earlier even if the monthly payments are less. Having sufficient retirement funds from other sources, such as a 401(k) plan, IRA, or the cash value from a whole life insurance policy, could make the decision to delay receiving benefits easier.





*Source: SSA Publication No. 05-10035, ICN 457500, July 2012 (

** The maximum amount of wages subject to Social Security taxes is $118,500 for 2015. Wages above the maximum amount are not subject to Social Security taxes. The wage limit does not apply to Medicare’s Hospital Insurance tax.

*** These are hypothetical benefit amounts based on inputs to the U.S. Social Security Administration’s online quick calculator ( quickcalc/index.html). These do not represent any particular person’s retirement benefits and are used for illustration purposes only. The amounts were calculated on November 16, 2012 and are subject to change