The first step in planning for retirement is understanding how much money you may receive from Social Security in the future.
Social Security calculates your benefits based on your earnings and work history, requiring you to earn Social Security credits.
To estimate your benefits, follow these six steps:
Step 1: Check your earnings record and ensure you have paid Social Security taxes for 10 years or more.
Step 2: Adjust your income for inflation using the Average Wage Index (AWI).
Step 3: Calculate your Average Indexed Monthly Earnings (AIME) by adding your 35 highest-paid years' earnings and dividing by 420 months.
Step 4: Work out your benefit amount using the Primary Insurance Amount (PIA) calculation, which includes 90% of the first $1,286 of AIME, 32% of AIME between $1,286 and $7,749, and 15% of AIME above $7,749.
Step 5: Know your retirement age, as waiting until full retirement age generally helps workers receive the largest standard monthly benefit.
Step 6: Check Medicare deductions, as Medicare Part B premiums are automatically deducted from Social Security checks for seniors enrolled in Medicare.
