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How to Estimate What Your Social Security Payments (Including Optimization) Will Be

In 2019, the average monthly social security benefit for retired workers was $1,471.1 This is not enough to live on, especially with inflation increasing every year while your social security payments will remain the same an. Most financial advisors agree that you'll need approximately 70 percent of your pre-retirement earnings to comfortably maintain your pre-retirement standard of living; however, if you have average earnings, Social Security payments will only replace approximately 40 percent of that income.2  


If you have a higher income, this percentage will be lower, as the payments are replacing less of your previous earnings. If you have a lower income, the percentage is higher.2


 Regardless of how much you made before retirement, you will most likely have to rely on other sources of income to supplement your social security benefits. How much you will need during retirement will depend on a number of factors such as: what you plan your lifestyle will be during, how much you have from other retirement plans such as from an IRA, 401k, etc. When attempting to make estimates for your retirement planning, it is best to make sure you are optimizing your Social Security (just like what we at Sage Investment Advisors do at office in Poughkeepsie, NY).


Optimizing your Social Security?! You are probably wondering what that means. Social Security Optimization is when you are able to collect the highest payment amount you are eligible for. This can help you in retirement since this means, you may not have to come up with a lot of extra income from other sources of retirement or a savings account to fund your retirement. In order to understand how to prepare your retirement plan, calculating an estimate for your Social Security payments (using optimization) is the first step of the process. 


What is the PIA Formula?

If deciding to receive benefits at the normal retirement age, the “primary insurance amount” (PIA) is the monthly benefit you would receive.3 For those eligible in 2020, your PIA is the sum of three different portions of your average indexed monthly earnings (AIME):4

  • 90 percent of your first $960 average indexed monthly earnings 
  • 32 percent of your average indexed monthly earnings between $960 and up to $5,785
  • 15 percent of your average indexed monthly earnings over $5,7853

To find your average indexed monthly earnings, you’ll need the years with the highest indexed earnings from 35 years of earnings, which you can find on your Social Security statement. Once you have those high-earning years, you can find the average, which is your AIME.4 

How Can I Estimate My Retirement Benefits? 

Once you have your AIME, you can calculate the percentages of the three different sections of your AIME and add them up, based on the PIA formula. You can also receive an estimate by creating a personal Social Security account with the Social Security Administration.

However, bear in mind that your actual benefits may look different from your estimate (you may earn more when you are able to optimize your Social Security payments). This is because laws regarding benefit amounts may change and your earnings may continue to alter over time. In addition, your benefits will be adjusted for living costs at the time you start receiving benefits.5      


3 Factors That Impact Your Retirement Benefits

1. Lifetime Earnings

Since your benefits are a sum of percentages based on your earnings, higher lifetime earnings mean higher benefits, whereas lower earnings, or gaps in earnings, results in lower benefits.2

2. Age

If you opt to receive benefits before your full retirement age, your benefits will be lower. On the other hand, if you wait to receive retirement benefits until after your full retirement age, your benefits might be higher.2

3. Employment

Paying for social security looks different for those who are self-employed, work for a federal, state, or local government, or work outside of the United States.2 If you are in one of those categories, it’s important to understand how this may affect your benefits during retirement.


It is never to early to begin planning for life after retirement, especially with the grim future of Social Security continuously being discussed. This formula is a helpful tool that can help you to have a general estimate of how much you will need for your retirement benefits. Working with an experienced financial advisor will help to create accurate estimates for your retirement benefits by optimizing your Social Security payments to make sure you are receiving the maximum payments you are eligible for. 


Published by Sage Investment Advisers, LLC in Poughkeepsie, NY

  1. https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
  2. https://www.ssa.gov/planners/retire/r&m6.html
  3. https://www.ssa.gov/oact/COLA/piaformula.html
  4. https://www.ssa.gov/oact/progdata/retirebenefit2.html
  5. https://www.ssa.gov/benefits/retirement/estimator.html

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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