How calculations work
How Social Security is calculated
How the engine works out each person's benefit, adjusts it for claiming age, adds spousal and survivor benefits and cost-of-living increases, and what it leaves out.
Social Security rules in the engine come from a data file built from the federal regulations and Social Security's published formulas. Wage-indexing figures, such as the national average wage index, the taxable maximum and the benefit formula's bend points, come from Social Security's own published series.
Where each benefit starts
Your primary insurance amount (PIA) is the monthly benefit at full retirement age. The plan can get it three ways:
- You enter it, in today's dollars, from your Social Security statement or Social Security's website.
- From your statement. You enter the statement's estimate, and the engine reworks it with your plan's own future pay. Like the statement, it assumes average wages rise only with inflation.
- Estimated from your pay. The engine runs Social Security's formula: your highest 35 years of earnings, indexed to wage growth, then the benefit formula's three bands. If you don't enter a full earnings history, it estimates past years by scaling your current pay back through the wage index to a starting age. Future wage growth follows the Social Security Trustees' intermediate assumption unless you set your own.
Claiming age
Benefits are adjusted for your claiming age:
- Before full retirement age: reduced by 5/9 of 1% per month for the first 36 months, 5/12 of 1% per additional month.
- After full retirement age: increased by 8% a year, up to age 70.
Full retirement age depends on birth year, from 66 for people born 1943 through 1954 to 67 for people born in 1960 or later.
Spousal benefits
For a married couple, a spouse whose own PIA is less than half the other's gets the difference on top of their own benefit. It starts only once both spouses have filed. The early-claiming reduction for that extra amount uses the claimant's age when it starts, at 25/36 of 1% per month for the first 36 months, 5/12 of 1% per additional month. Delayed credits don't apply to it.
Survivor benefits
When a spouse dies, the survivor receives the larger of their own benefit and a survivor benefit. The survivor benefit is based on the deceased's benefit, including delayed credits, or their PIA if they hadn't claimed. If the deceased claimed early, the survivor gets at least 82.5% of the deceased's PIA. A survivor who starts before their own full retirement age receives a reduced amount, starting from 71.5% at age 60.
In the projection, the survivor's reduction is recalculated each month from their current age. The Social Security explorer instead lets you choose when the survivor starts.
Cost-of-living adjustments
Benefits rise with the plan's general inflation. In a simulation, they follow that future's inflation path. You can also test a cut in benefits, as a percentage from a chosen year.
Taxes
Benefits are taxed under the federal rules, with up to 85% taxable depending on your other income. The thresholds aren't indexed for inflation. States that tax benefits are handled in each state's rules.
Working while claiming
If you claim before full retirement age while you still have pay in the plan, the projection applies the retirement earnings test. It withholds benefits from the earnings planned for that year and credits the withheld months at full retirement age. The Social Security explorer compares claiming ages without the earnings test.
Not modeled
- Benefits for children and the family maximum.
Confirm your figures with the Social Security Administration before you file.