The exact amount in Social Security benefits you receive each month can be difficult to predict. Benefit amounts are calculated based on several factors, and the amount is different for every person. However, if you are looking to plan for retirement, it is a good idea to get an estimate of the amount you’ll be receiving as Social Security may serve as your primary source of income.

What is the Average Social Security Payment?
Before we get into how to calculate your own monthly benefit, it can be helpful to have an idea as to what the average American receives. As of January 2020, the average Social Security benefit added up to $1,503 per month.

Social Security also places a cap on the total benefit you can receive, which as of January is $3,011. As a reference, in order to qualify for the maximum benefit amount, a worker must have had an income at or above the total maximum taxable amount for at least a 35-year career. For 2020, this amount is $137,700.

Calculating Your Own Social Security Payment
Social Security is determined based on the 35 highest earning years during your employment career. If you have worked for more than 35 years, your lowest earning years will be dropped from the calculation. Additionally, your earnings from all years prior to your 60th birthday will be adjusted to account for inflation. For those who have worked for fewer than 35 years, an amount of zero dollars will be added for each additional year to get to 35 years and will be factored into the average.

These yearly earning amounts are all averaged, providing you with an average indexed income amount. This is then divided by 12 to provide a monthly average. To calculate your benefit amount, you will take the first $960 of your monthly indexed income and multiply it by 90 percent. Then, multiply your remaining earnings, up to $5,785, by 32 percent. If you still have earnings remaining, those will be multiplied by 15 percent.

Sum up these three amounts, and round your total amount down to the nearest 10 cents. This total will be your initial payment amount. Cost-of-living adjustments or qualifying for delayed retirement credits may increase your initial payment amount further.

Retirement Age
Full retirement age ranges from 65 to 67 depending on the year you were born. If you decide to delay receiving Social Security benefits past this age and up to 70 years old, you will qualify for additional Social Security benefits.

If you are married, you may also qualify for benefit increases. Spouses are eligible for up to 50 percent of their spouse’s benefits, but only if that amount is higher than the amount they qualify for. For marriages lasting more than 10 years ending in divorce, an ex-spouse may claim benefits based on their ex-spouses benefits and working record.

Deduction of Medicare Premiums
If you are utilizing Medicare Part B, you will be responsible for paying a monthly premium payment for your care. In 2020, the average Part B premium is $144.60 per month. If you are signed up for Part D, this premium will also be subtracted from your Social Security benefit amount.

Deduction of Taxes
Unless Social Security is your sole form of income after retirement, you will be forced to pay taxes. Other forms of income can include IRA withdrawals, a pension, employment, interest and dividends, and others. Depending on the total amount of other income, you are subject to paying tax on between zero and 85 percent of your Social Security benefit amount. To avoid paying a large amount of tax at the end of the year, you have the option to select how much tax you would like withheld from each month’s benefits. The options are seven, 10, 12, or 22 percent.

Once you factor in your maximum potential benefit and subtract your taxes, Medicare premiums, and other deductions, you should have a fairly accurate idea as to the Social Security benefit you will receive on a monthly basis following retirement.

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