Here’s How Much Social Security Pays You for Every $1,000 You Earn

The tens of millions of retirees who receive Social Security get benefits that are based on their work histories. The longer you work and the more you earn, the greater your Social Security check is likely to be in retirement.

The calculations that go into determining the exact amount of your monthly Social Security benefit are complicated. However, by making some assumptions, you can get a solid idea of just what every $1,000 you earn means for the Social Security benefits you’ll eventually get.

How Social Security determines your monthly checks

The process that the Social Security Administration (SSA) goes through to figure out how much you’ll receive from the program involves a few steps. First, the SSA goes through your work record, adjusting your annual compensation to account for inflation and picking out the 35 years when those adjusted earnings were the highest. Second, it adds up the earnings numbers and divides by 420 — the number of months in 35 years — to come up with your average indexed monthly earnings (AIME).

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The next step is to take your AIME and run it through a formula that’s specific to your birth year to come up with your primary insurance amount (PIA). For instance, the PIA for those who turned 62 in 2022 equals 90% of the first $1,024 of average indexed monthly earnings, plus 32% of the amount of AIME between $1,024 and $6,172, plus 15% of any amount above $6,172.

The PIA tells you what you can expect to receive as your monthly retirement benefit if you claim your Social Security at full retirement age, which for those turning 62 in 2022 is age 67. Claim earlier than full retirement age, and your monthly payments will shrink by as much as 30%. Delay them as late as age 70, and you could get 24% more in your monthly Social Security check.

Earnings in three stages of your career

When you earn $1,000 in a given year, you’ll potentially boost your average indexed monthly earnings by $1,000 divided by 420, or about $2.38. But because of the way the primary insurance amount formula works, the amount of benefits that $2.38 turns into will vary over the course of your career.

When you’re first getting started, every dollar you earn will go toward getting your AIME up to the top of the 90% threshold in the PIA formula. For instance, based on the 2022 PIA brackets, for all your lifetime earnings on an indexed basis up to about $430,000, every $1,000 you earn will add about $2.14 to your PIA. That directly translates to what you can expect at full retirement age in your Social Security check.

Later on, though, the extra benefits from every additional $1,000 in earnings drops. Again using the 2022 numbers, when your lifetime earnings go above $430,000, the contribution to your PIA will drop to 32%. That means every $1,000 earned will add just $0.76 to your PIA.

Big earners can see the impact of more income shrink still further. If your lifetime earnings reach about $2.59 million using 2022 figures, you’ll be in the 15% contribution range. That will further reduce the impact of every extra $1,000 you earn on your PIA to about $0.36.

Lastly, whatever decision you end up making on when to claim Social Security has an impact here. For instance, if you expect to claim at 62 instead of 67, you can reduce those $2.14, $0.76, and $0.36 per $1,000 numbers by 30% to $1.50, $0.53, and $0.25 respectively. If you plan to wait, however, add 24% to them, getting $2.65, $0.94, and $0.45.

What to expect from Social Security

These numbers will change from year to year. Younger folks can expect to see more of their earnings stay in the 90% portion of the PIA formula, letting them earn more in their careers before reverting to lower percentages.

The lesson here, as with many things related to retirement, is that every step you take in your career gradually adds to your Social Security benefits when you retire. Your progress might seem small at the moment, but if you maintain your resolve, it will eventually grow to provide a huge portion of your financial security in retirement.

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