As you prepare for your golden years and retirement, it’s important to understand how your pension is calculated, how much money you’ll receive each month, and the factors that may impact your payment.Armed with this knowledge, you can ensure your overall retirement plan fits your lifestyle and financial needs.
How much pension will I receive?
The total pension payment varies by individual, as it is based on your personal situation. Four key factors described below affect how your monthly pension is calculated: your birth year, claiming age, earnings history, and work history.
Factors That Impact How Much Social Security You Will Get
Birth Year
At age 62, you can begin receiving a portion of your pension. However, to be paid 100 percent of the benefit for which you qualify, you must reach your full retirement age, which is based on the year you were born. Currently, the full retirement age for individuals born between 1943 and 1954 is 66. Individuals born between 1955 and 1959 reach 100 percent after 66 years plus a specific number of months. For example, if you were born in 1957, your full retirement age is 66 and six months. For those born in 1960 and later, the full retirement age and 100 percent eligibility is at age 67.
Claiming Age
When you decide to claim your pension greatly impacts how much you’ll receive. As mentioned above, you can begin claiming Social Security as early as age 62. However, you will receive a reduced portion of your benefit, not 100 percent. If you choose to wait until your full retirement age to claim pensions, you will receive 100 percent. Delaying Your pension until age 70, the age when your benefits peak, will increase your monthly payment above 100 percent.
Earnings History
The more you have earned over the lifetime of your career, the more you have paid into the U.S. Federal payroll tax, known as the Federal Insurance Contributions Act (FICA). FICA helps fund Social Security and Medicare programs.
Work History
Your average Social Security payment is based upon your highest-earning 35 years of work history. Year(s) not spent in the workforce will count as a zero, thus affecting your average payment. Examples of a “zero year” include taking time to raise a family, spouse or parent caregiving, or being unemployed.
What Is the Average Social Security Payment?
Average Social Security Payment
According to the Social Security Administration (SSA), the average estimated monthly Social Security payment in 2024 after the 3.2 percent cost-of-living (COLA) increase is:
Ways to Estimate Your pension for Retirement
With so many varying factors, estimating your pension can be a challenging task. Take advantage of these four useful ways to calculate the most accurate retirement benefit estimates:
1.Create a free my Social Security account.
2.Call the Social Security Administration.
3.Use the Social Security Quick Calculator.
4. Request an up-to-date Social Security statement.
Things to Keep in Mind When Estimating How Much Social Security You Will Get
These key factors can impact your estimated pensions, so keep them in mind as you work through your calculations:
1. There is a cap on earnings known as the maximum taxable earnings limit. The cap on Social Security taxation for 2024 is $160,200. If the cap has been met, there will not be any additional Social Security tax deducted from your paycheck.
2. Estimating pensions does not provide a concrete figure. The number calculated is simply an estimate. You won’t know the exact figure until an official claim has been placed.
3. A COLA is updated annually. The Social Security COLA adjustment for 2024 is 8.7 percent.
4. Increases (or decreases) in your earned income will affect your official benefits.
5. If you have worked less than a total of 35 years, your benefits will be reduced as years out of the workforce are calculated as “zero” years.
6. The Social Security Administration's governing laws and regulations on Social Security can change.
