Understanding your Social Security benefits can be quite confusing.
There are so many acronyms and what if scenario's it's hard to get a clear understanding. And so many people simply let the Social Security Administration tell them what their benefit will be and leave it at that.
That's a mistake though. What if the SSA got it wrong? We are talking about a HUGE Federal be bureaucracy here. Mistakes happen all the time.
Secondly, if an error did occur it will affect your for literally the rest of your life and potentially your surviving spouse as well.
So, it's important to make sure the SSA has your information correct in order to give you your proper retirement benefit.
But where to start?
This is what this video series on Social Security will answer for you
First thing you need to do is go to the SSA.gov website and sign up to review your benefits. https://www.ssa.gov/site/signin/en/
Remember, a few years back the Social Security Administration stopped sending annual benefit statements in the mail under you reached the age of 60.
Many people now have NO clue what their benefit is because they don't log into the SSA website to check.
Don't let that be you.
You need to view your record because we need to make sure your earnings history is accurately reflected.
Your earnings record gets adjusted for inflation and used to come up with your Average Monthly Earnings Index...your AIME.
Everything you receive in Social Security benefits is a result of your AIME. So, it's MOST IMPORTANT to make sure this number is accurately reflecting your past earnings history.
If you made $100k in 2006 but the SSA is only showing you with $40k earnings, you need to get that fixed. You paid tax on that $100k after all!
So, let's assume everything on your statement is good to go. Now what the SSA does take your top 35 years of earnings and adjust for inflation. Then they add all those years up and divide by 420.
That number is your AIME.
For instance, say your inflation-adjusted earnings were $40k each year for 35 years. The SSA takes $40,000 and adds it 35 times. The total is $1,400,000.
Then they divide $1,400,000 by 420. 420 is the number of months in 35 years.
That equals $3.333, which is your AIME.
Now your AIME is NOT your actual benefit.
Social Security has 3 'bend' points that they use for your AIME to determine your benefit.
The first $895 of your AIME is times by .90 to give you $805.50.
The next $4500 of your AIME is times by .32. In this case though you only have $2438 above the $895 threshold. So, take $2438 times by .32 and you get $780.16
Add $780.16 and $805.50 to get your benefit amount, also known as your Primary Insurance Amount(PIA), which is $1585.66
Your PIA is the amount you will receive if your retire at your Full Retirement Age (FRA).
Fun right??? AIME? PIA? FRA? Don't worry we've only just begun. In future videos we'll have even more acronyms for you.
But not to worry.
If you can remember just one thing from this video, just know your AIME. It's the number that everything is based on.
Check your statement and make sure the information in it is correct.
Stay tuned for more videos on Social Security planning.
The next one we'll discuss exactly what you
