If you’ve been paying into the Social Security system for years, you’re probably wondering how that money will come back to help you later in life. With all the talk recently of Social Security running low at some point, it’s even more important now to start planning for the future. If you’ve been injured or disabled and are hoping to get benefits sooner, then it becomes an even more pressing problem. With that in mind, let’s take a look at how social security benefits are calculated.
Honestly, it’s impossible to go into every little detail in the space of a quick post. The formula the SSA uses to calculate its various benefits schedules can be pretty complicated. However, here are the basics for disability, if you are eligible for Social Security benefits:
First, the SSA takes a look at your total earnings over the course of your working history. The SSA will look at all the money you have earned while working and use it to calculate what is called your Average Indexed Monthly Earnings (AIME) figure. This AIME number is used to represent your average monthly earnings over the course of your life. Things like inflation are taken into account, and the more you’ve worked over the years and, the more chance of this being a higher number as your earnings should theoretically go up over time. In addition, having taken time off of work can result in a lower AIME number, as well, as those years are taken into account.
Once your AIME is determined, the SSA will then use this number to calculate your PIA, or Primary Insurance Amount. The PIA is used to figure out the amount of money you are entitled to based on those monthly earnings. Your earnings are divided into three tiers: the first tier, which is the $885 you earned, is rated at 90%. The second tier, which is the amount you earned monthly between $885 and $5,336, is rated at 32%. The final tier is everything over $5,336, and is rated at 15%. This amount is now totaled up. Again, there is some finagling here based on inflation, rounding up or down, etc.
Once these calculations are done, you are left with a number that represents the total maximum amount you are entitled to if you are eligible for Social Security benefits. Of course, there is a maximum monthly benefit you are entitled to, regardless of your work history. In 2017, that max amount per month is $2,687.
If this sounds complicated, don’t worry: we have experienced professionals who can help you make sense of it all. Don’t hesitate to contact us today!