When planning for retirement investors often overlook Social Security retirement income and focus exclusively on building the largest retirement portfolio possible. While it’s always prudent to plan for a worst-case scenario, having a rough idea of what your Social Security benefits will be at retirement age is vital. Here’s how to estimate your Social Security benefits for retirement.
You may discover (based on the amount of the expected benefit) that you’re on the right track with your investments, or maybe even ahead of the game.
You’ll have plenty of time to make adjustments between now and then, in the event you don’t know what your benefits will be.
Why You Need an Estimate of Social Security Benefits
When preparing for retirement it’s important to have at least a ballpark figure of how much income you’ll have from all sources. Even if you think you’ll have plenty of savings and income from your retirement portfolio, it’s helpful to know you’ll have some room to maneuver, just in case your investing doesn’t go quite where you think it will in the coming years.
In addition, the income from Social Security can provide some extra room in your retirement budget to allow you to make some additional plans during your retirement years.
It’s worth it to check your benefits every now and again, at least annually, to stay updated. Changes in your income or in the way the government calculates benefits can result in significant changes in the estimate of your benefits. Staying on top of your estimate will become more important the closer you get to retirement age.
Reports of Your Benefits Are Not Available
Up until a few years ago the Social Security Administration used to send annual estimate-of-benefit statements to everyone who participates in the program, which is virtually everyone in the United States who has earned income. But as a budget cutting method, they terminated the notification program so you now have to use their online estimator.
You can still get a paper estimate of your Social Security benefits, but you’ll have to go to the administration’s website and fill out some information first. As you’re about to see, it isn’t at all complicated.
1. Use the Social Security Benefit Calculator
You can start determining your benefit estimate by going to the Social Security Administration’s Retirement Estimator page. On that page you’ll be given instructions on how to use the estimator and what the qualifications are.
From that page, you click the Estimate Your Retirement Benefits button and follow the steps on each screen. Note that you have 25 minutes to complete each screen; otherwise, you will be automatically logged off.
Screen 1 – Verify Your Information. On this screen you’ll complete basic information, such as your name, Social Security number, mother’s maiden name, and date of birth. You’ll also be asked to agree to the Terms of Service, after which you can click on the Submit to go to the next screen.
Screen 2 – Retirement Estimator (1st). This screen will ask you to enter your earnings for the last full year, and your expected age of retirement. Once you enter the required information, you can click through to pay dirt.
Screen 3 – Retirement Estimator (2nd). This screen will give you your estimated benefit numbers, providing the breakdown for three retirement options, based on your expected age at retirement:
- At full retirement – This age will vary depending on your date of birth but will be no higher than age 67. Don’t worry if you don’t know what your age of full retirement will be, the Estimator will automatically calculate it based on your date of birth.
- At age 70 – You can increase your Social Security retirement benefit by delaying your retirement, but there is no advantage to doing so past age 70. The Estimator will provide the estimated benefit if you should decide to delay. You can increase your benefit by 8% per year by delaying past your full retirement age, up to age 70.
- At age 62 – This is the earliest age at which you can collect Social Security retirement benefits, but doing so will result in a reduced benefit. For example, if your age of full retirement is 67 and you opt for retirement at age 62, your benefit will be roughly one-third lower than what it will be if you wait until you turn 67.
Knowing what the benefit estimate is for each of the three ages can be an important tool in helping you decide what age will be the best time for you.
The screen will give you the option to either Add a New Estimate or to exit the page.
2. Work With Different Income Scenarios
One of the best features of the Retirement Estimator is it allows you to enter different income numbers, which can have an effect on the amount of your benefit. In general, the higher your income will be between now and your retirement age, the higher your Social Security Benefit will be, up to the maximum benefit of $2,639 per month at full retirement age.
Most people, particularly the self-employed, concentrate on income tax minimization strategies, which generally require you to minimize your income. But when you are preparing for retirement, that’s not always the best strategy — especially in the years leading up to retirement. By maximizing your income you can increase your Social Security benefit and also increase the amount of your retirement plan contributions. That can have a positive effect on your overall retirement income.
You can use the Retirement Estimator to help you determine the maximum income you will need to have in order to reach the highest Social Security benefit you can get.
The Retirement Estimator is free and easy to use and provides you with important information, so be sure to take advantage of it. Once you’ve estimated your Social Security benefits, you’ll have a better idea of what your income during retirement will be.