Knowing how much you’ll get from Social Security can help you plan for retirement. While the Social Security Administration provides some tools for estimating benefits, it is still necessary to understand how many factors, up to the final amount of the benefit, would affect it. If you make $200,000 in a year, here’s how a Social Security calculator will help you figure out your potential benefits and what consideration is required.
Estimating Social Security benefits
Social Security benefits are calculated using your lifetime earnings, the age you start claiming benefits, and other factors like inflation and marital status. Here’s what you’ll need to input into a Social Security calculator to estimate your benefit:
1. Annual Income: Enter your yearly earnings. For a $200,000 salary, it’s important to note that Social Security benefits are capped based on the maximum taxable income under the Federal Insurance Contributions Act (FICA). In 2017, the FICA limit was $127,200, meaning earnings above this amount don’t contribute to your Social Security taxes or benefits. While the cap adjusts annually, your benefit will be based on the income up to this limit, not your full $200,000 salary.
2. Expected Salary Growth and Inflation: Many calculators allow you to input anticipated annual salary increases and expected inflation rates. Long-term inflation has historically averaged around 2.9%, but it fluctuates. These factors help estimate how your earnings may grow over time and how inflation could impact your benefits.
3. Spousal Benefits: Married individuals may include spousal benefits in their calculation. If only one spouse works, Social Security benefits can be 1.5 times the individual’s benefit. However, if both spouses work, benefits are calculated separately based on each person’s income. For couples, running separate calculations for each spouse’s earnings can provide a more accurate estimate.
4. Retirement Age: Benefits are affected by when you begin receiving them. For those born after 1954, the full retirement age ranges from 66 to 67. Claiming benefits earlier reduces your monthly amount, while delaying benefits beyond full retirement age increases them.
How Social Security benefits are calculated
Social Security uses a formula based on your average indexed monthly earnings (AIME) over your highest 35 earnings years. The formula applies progressive benefit rates to different portions of your income:
- 90% of the first portion of your AIME.
- 32% of the next portion.
- 15% of the remainder, up to the maximum taxable amount.
Because of the FICA income limit, your $200,000 salary will only contribute up to the cap. In 2017, the maximum annual benefit for a single person was $32,244, or $2,687 per month. Married couples could receive up to 1.5 times this amount if one spouse didn’t work.
Key considerations for high earners
Income of $200,000 per year may also qualify you for an upper income bracket, but your Social Security benefits are capped anyway:
- Exceeding the Cap: Although income above the FICA limit will not affect Social Security taxes or benefits.
- Long-term Income: To qualify for the top benefit, you would have to earn at or above the FICA cap for 35 years.
- Age of Retirement: Postponing benefits beyond your full retirement age can increase your monthly benefit by as much as 8% per year until the beneficiary turns age 70.
Using a calculator
To estimate your benefits, you can use the Social Security calculator and enter your salary and some other relevant details. Remember to:
- Project any salary increases and inflation rates.
- Put whether you have included spousal benefits.
- Register your anticipated retirement age.
Bear in mind that calculators are approximate and that actual benefits may vary depending on work history and SSA policy. Get precise figures from either the SSA or your financial advisor.
Knowing what kind of benefits you can expect from Social Security will help you make informed decisions q
about your financial future, not just for the present but also for your later years.
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