How to Navigate the Maze of Estimating Your Future Social Security Benefits

Many people will rely on Social Security after they retire, but it’s not always obvious how much money they’ll bring in each month. Social Security benefits are based on how much money you made while working, how long you worked, and how old you are when you start claiming benefits.

While estimating your monthly benefits may seem complicated, it’s fairly easy if you know where to look. Below, we’ll guide you through the basics to get a handle on the process and make it manageable.

Start With the SSA’s Estimate Tool

The easiest way to find your benefit information is with the Social Security Administration’s free estimate tool. Head over to the Social Security Administration’s (SSA’s) website at SSA.gov and create your account. It’s free and safe to set up, and the best way to see all of your Social Security information in one place.

In your account, you’ll be able to view your earnings records as well as get an estimate of your future benefits. Since it’s based on real data, you can check what your Social Security payments will be at different claiming ages.

Your benefits will increase the longer you wait to claim them. The estimation tool can show how much you will receive if you claim them at age 62 (the earliest age you can claim), versus a typical retirement age of around 66 or 67, or age 70 (the age when your benefits max out).

This tool will provide clear, numerical information on your expected benefits, removing any confusion around your payout.

It’s All Based on Work History

Your benefit is based on your highest 35 years of earnings, adjusted for inflation.

So it’s not based on your last job but rather the highest amount you made. Those 35 years don’t need to be consecutive, just whichever 35 years provided the highest annual income.

If you haven’t worked for 35 years, then the gap is counted as zero, which can lower your benefit amount. For example, if you worked for only 20 years, those missing 15 years will be noted as $0. That’s why every working year matters, especially if you’re earning more later in your career than when you first started working.

If you haven’t worked for 35 years, you do have some options. According to Russel Morgan, founding partner of Morgan Legal Group, “Delaying retirement to accrue more years of earnings, even part-time work, can meaningfully boost benefits”.

Additionally, Morgan says, “Spousal benefits may offer a higher payout, especially if one spouse has significantly higher earnings. For self-employed individuals, we sometimes recommend continuing to report income, even if minimal, to replace $0 years in the formula.” Morgan also advises that “trust structures and passive income streams can supplement gaps in Social Security coverage.”

Note that the SSA only takes into consideration income that was taxed for Social Security. So any income you made under the table or didn’t report won’t be considered in your benefits calculation.

Even certain government jobs or foreign employment that didn’t pay into Social Security won’t be counted. The longer you work and pay into Social Security, the higher your benefits will be.

Timing Is Essential

One of the most critical aspects of Social Security is your age when you start taking benefits. This will impact how much you receive every month, forever.

If you start claiming at 62, the earliest possible age, your benefits will be reduced forever. If you wait until your full retirement age, which is either 66 or 67, depending on the year you were born, you’ll receive your full benefit.

However, if you wait until 70, you’ll be rewarded with an additional amount. This amount is usually 8% more for each year you delay past your full retirement age.

That means someone with a full retirement age of 67 and a benefit of $2,000 would receive $2,480 per month if they waited till 70 to start receiving Social Security. That’s a significant number.

It may be difficult for some to know when to start taking Social Security to get the maximum total benefits. And the answer will differ for everyone.

“The decision should align with both financial needs and life expectancy,” says Morgan. “We help clients weigh these options in the context of estate goals, income needs, tax implications, and potential survivor benefits.”

“Claiming at 62 results in a permanent reduction (up to 30%) in monthly benefits, but may be necessary for health or employment reasons,” Morgan says. “Full retirement age (FRA) offers standard benefits and is often a balanced choice for those still earning or who expect average longevity.”

But if you can wait a few years, the increased benefits can pay off, depending on how long you live. Waiting till age 70 is “ideal for those with longevity in their family and sufficient retirement savings,” Morgan says.

Common Mistakes

It’s important to know that Social Security is not designed to cover all of the expenses in your retirement years. For most people, it will only cover approximately 40% of expenses, meaning there is a large gap that needs to be filled.

This should be covered by retirement accounts, such as IRAs and 401(k)s, as well as other savings and investments. So it’s best to start planning early for retirement by contributing to retirement plans and other forms of savings to ensure you have enough money to cover your retirement years.

Additionally, don’t make the mistake of not checking your earnings history. You want to spot errors in your account that might reduce the benefit that you’re entitled to. Checking your account history once a year is a safe bet to ensure you’re receiving what you worked hard for.

“Mistakes in earnings records can dramatically impact benefits,” says Morgan. “Common errors include missing or incorrect income years, misreported self-employment income, and name or Social Security number mismatches.”

You can correct these errors by regularly reviewing your Social Security statement and filing Form SSA-7008 to dispute inaccuracies. You may need to provide W-2s or other documentation as evidence.

Finally, don’t use third-party calculators available on the Internet to estimate your benefits. The Social Security tool is the only legitimate resource that takes into account your actual earnings history and other information.

The Bottom Line

Understanding what your monthly Social Security benefit will be might seem confusing. However, it’s fairly simple once you know how benefits are calculated and what tools to use.

Knowing how your working years, retirement age, and reported earnings factor into your benefits will give you more control over planning and saving for your retirement years. While Social Security won’t cover all the expenses in your non-working years, it’s a great foundation for your nest egg.