3 Factors That Will Dictate What Social Security Pays You

There are a number of misconceptions out there regarding Social Security, and one of them is that the program pays all seniors the same universal benefit. But that’s not true at all.

You may end up being entitled to a monthly benefit that’s $1,000 higher than what your closest retired friend or neighbor receives. Or your personal benefit could end up being lower than the amount most of the people you know collect.

It’s important to understand the factors that go into calculating Social Security benefits, especially since some of them may be within your control. Here are a few to keep in mind.

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1. Your wages

The amount of money you earn during your career will determine how much money Social Security pays you. If you’re a higher earner, you can expect a more generous benefit than someone who’s a lower earner, and vice versa.

One thing you should know is that there’s a wage cap put into place each year that determines how much income is taxed and counted for Social Security purposes. That cap currently sits at $147,000. This means that in 2022, earnings above $147,000 don’t count toward calculating future benefits.

But all told, boosting your income could be your ticket to higher benefits down the line if your salary hasn’t reached the annual wage cap. So it’s worth pushing for promotions and raises not just for the near-term benefit, but also for a higher Social Security payday down the line.

2. The number of years you work

The Social Security Administration looks at your 35 highest-paid years of earnings when calculating your monthly benefit. But if you don’t work a full 35 years, it means you’ll have a $0 factored into your benefit calculation for each year you’re missing an income.

If you’re nearing the end of your career with only 33 years of income under your belt, you may want to look at extending your time in the workforce for two more years. Doing so could lead to a higher benefit throughout retirement.

3. The age at which you file

Once you reach full retirement age (FRA), you’re entitled to your complete Social Security benefit based on your wage history and number of years in the workforce. FRA is either 66, 67, or somewhere in between, depending on the year you were born.

You’re allowed to sign up for Social Security as early as age 62, but filing for benefits before FRA will reduce them in the process. On the flip side, you can opt to delay your benefits past FRA and grow them up until age 70. For this reason, you must consider your filing age carefully, as it could lead to a higher or lower benefit.

Know how Social Security works

Social Security is a complex program, but understanding how benefits are calculated could help you snag a higher monthly income for retirement. It pays to read up on Social Security even if you don’t plan to leave the labor force for many years. The earlier you devise a strategy, the better those benefits are likely to serve you once you’re ready to start collecting them.

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