How Much Social Security Will I Get? Here Are the Factors That Impact Your Payment.

Almost 50 million retired workers in the U.S. are collecting monthly Social Security benefits, according to the Social Security Administration. And for a large majority of these people who are over 65, Social Security benefits make up as much as 30 percent of their income. 

Social Security can be an important consideration when planning your retirement, and knowing how much you’ll receive in Social Security can be helpful in creating your retirement plan. But this is easier said than done. Calculating your Social Security benefit payment can be a tricky exercise.  

How much you’ll receive is based largely on how much money you made during your lifetime, so the more money you made, the larger your benefit payment is likely to be. However, there are many other factors that can influence exactly how much you’ll receive.  

We’ll give you an idea of how Social Security is calculated so you can begin to get a sense of how much Social Security you might get.  

How does Social Security work? 

While you’re working, part of the taxes you pay will go toward Social Security. If you work for an employer, you’ll contribute 6.2 percent of your paycheck, and your employer will contribute another 6.2 percent. If you’re an independent contractor, you’ll contribute the full 12.4 percent.  

This money goes into different government-managed trust funds that are used to pay out benefits to people who are retired, people with qualifying disabilities, dependents of beneficiaries, and surviving spouses/dependents. These specific benefits all follow different processes, but here, we’ll just focus on retirement benefits.  

How is Social Security calculated?  

The starting point for determining your Social Security retirement benefit is your monthly income while you were working. From there, a series of relatively complicated calculations are applied to determine a base rate. Then, your base right is adjusted based on some additional variables.  

The first step in understanding how much Social Security you’ll get is understanding the pieces of the formula.  

Average indexed monthly earnings  

Your average indexed monthly earnings (AIME) is a fancy way of saying your adjusted average top gross monthly earnings over 35 years of work. However, there is a limit to the wages that are included in this average. Each year, the Social Security Administration (SSA) sets a limit for how much of your income is taxed for Social Security and counts toward Social Security. In 2024, that limit is $168,600. Anything you made over that amount each year would not count toward your AIME.   

To calculate this, the SSA will multiply your monthly income for the 35 years you earned the most money by the national average wage index (NAWI) to normalize your income each year you worked for the rate of inflation when you turn 60. What you’ll end with is your inflation-adjusted average monthly earnings.  

If you haven’t worked a full 35 years, the SSA uses a figure of zero for any years you didn’t work when calculating your AIME. If you took time off and therefore decided to work a bit longer, you’d reduce your “zero-earnings” years and increase your overall average.  

Primary insurance amount  

The primary insurance amount (PIA) you will receive in Social Security is calculated using your AIME. The SSA will multiply portions of your income—based on thresholds called “bend points” —by different percentages. The sums of those amounts are then added together to determine your base rate   (or primary insurance amount) for Social Security payments.  

Bend points generally help ensure that people who earned a lower income receive more replacement income from Social Security, and people who earned a higher income receive a lower rate of income replacement. They’re based on the year in which you turn 62, and they change every year.  

The Social Security Administration has a table that illustrates bend points for each year, starting in 1979 to the present year.  So, for example, if you turned 62 in 2024, the first $1,174 of your AIME would be multiplied by 90 percent, the remaining earnings up to $7,078 would be multiplied by 32 percent, and any earnings over $7,078 would be multiplied by 15 percent. These amounts would then be added up (rounding the total down to the nearest tenth   ) to determine the base amount you’d receive in Social Security.  

Your PIA does not necessarily end up representing how much you’ll receive in Social Security; it’s the base amount your benefit will be based on.  

Other factors that impact your Social Security benefit amount 

Your PIA establishes the base amount your benefit will be based on, but depending on a few additional factors, your monthly benefit payment amount can change. Here are some factors that can impact your payment amount:  

Your employment status 

It is possible to take Social Security and continue working; however, doing so could alter how much you receive depending on your age and employment history. If you had a break in employment, working could help increase your payment by making up for the years when you did not earn an income. However, if you’re under the full retirement age, there is a limit to how much money you can earn before your Social Security benefit payment amount is reduced.  

In 2024, if you’ve reached  the full retirement age (67), you need to make less than $22,320   for your benefit payment amount to not be impacted. In the year you reach full retirement age, that limit increases. In the year you will reach retirement age, you’re able to make up to $59,520 in the months leading up to your birthday without your benefit payment amount being impacted. After you reach the full retirement age, there is no limit on how much you’re able to earn without your Social Security payment being impacted. 

At what age you begin taking Social Security 

You are eligible to begin taking Social Security benefits at age 62, but doing so before reaching the full retirement age (67 for people born in 1960 or later)   will result in a reduced benefit payment amount—and a reduced total benefit in the long run. The amount your payment is reduced will depend on how far you are from the full retirement age at the time you begin taking Social Security.  

You can also increase your monthly payment amount (and cumulative benefit amount) by delaying taking your Social Security benefits. For every 12 months you wait, you can increase the amount you’ll receive by 8 percent until you reach age 70—a 24 percent increase.   So, if you’re able to hold out, there can be a significant benefit to delaying taking Social Security.  

Your taxable income  

Depending on your taxable income, you may have to pay taxes on your Social Security payments. And these tax payments may be withheld from your benefit payment, which brings down your monthly payment amount.  

Your Medicare plan  

Once you’re eligible for Medicare, you’ll pay monthly premiums for coverage. For certain Medicare programs, your premium may be withheld from your monthly payment, bringing your total benefit payment amount down. And if you have a higher income, you may have higher Medicare premiums. Generally, Medicare premiums  for retired workers are offset by Medicare payments from people that are working and paying into Medicare. However, if you have a higher income, you may not qualify for this subsidy, which would mean you need to contribute more toward your premiums.  

Inflation 

Every year, the SSA makes a cost-of-living adjustment (COLA) adjustment to your monthly benefit payment amount to account for inflation. In 2024, the SSA increased Social Security payments by 3.2 percent.  

How much will I get from Social Security?  

As you can see, because there are so many factors at play, calculating exactly how much you’ll get from Social Security can be a complicated exercise. The SSA has a Social Security calculator that can help you make a rough estimate, but the best way to get an accurate estimate is by working with a financial advisor. Northwestern Mutual advisors use proprietary software to help you review the impact of different claiming decisions and figure out the best claiming decision based on your needs.     

It can also be helpful to have a general sense of how much the average Social Security payment is. In November 2023, the average Social Security payment for retired workers was $1,84 8. After the cost of living (COLA) adjustment, the SSA predicts the average payment in January 2024 will be $1,907. There is also a limit to how much you can receive—depending on how much you made in your working years and when you begin to take Social Security.  

How can you find out how much Social Security you will receive?  

If you’re looking for a ballpark estimate, you can enter your current salary, birth date and projected retirement date into the Social Security Administration’s Social Security calculator, but keep in mind that this is just an estimate. It won’t account for taxes, Medicare or COLA. If you’re looking for a better understanding of when the right time is for you to take Social Security and the impact of that decision on your retirement plan, a financial advisor can get you much closer.    

It’s also important to keep in mind that Social Security is only one part of a retirement plan. If Social Security accounts for only about 30 percent of income for a person over 65, the other two-thirds will need to be covered by other retirement income from assets like a 401(k), IRA, pension or annuity.  

This is where a Northwestern Mutual financial advisor can really add value: An advisor can show you how to use all these retirement savings options together to maximize their benefits—and your savings. An advisor can also help you understand the role Social Security could play in your plan and the factors of your specific situation that could impact your total benefit amount.