Charlie Eissa is a retirement planning expert who works with seniors of retirement age manage their finances and set plans and goals for their future. With a plethora of knowledge, Charlie Eissa strives to make retirement planning more accessible to seniors. In the following article, Mr. Eissa discusses social security benefits for seniors in 55 and over communities in Pittsburgh PA and beyond – how social security benefits are determined, how to manage and maximize these benefits.
The United States Social Security Administration uses a formula to calculate monthly benefits based on recipients’ prior earnings histories, the age at which they start receiving benefits, and the amount they’ve previously paid into the system. At most, though, senior citizens can only earn up $3,345 a month. This is known as the maximum benefit according to Charlie Eissa.
Depending on the total amount of social security a recipient earns, they may be able to live out their remaining years on government benefits alone. However, many seniors still require additional savings to cover other costs. To better understand how the Social Security Administration calculates benefits, Charlie Eissa takes a moment to explore the system.
Factors that Influence Social Security Benefits
According to the Social Security Administration, there are three primary factors that influence how much a senior citizen will earn once they start drawing government benefits. Charlie Eissa explains that these three factors include:
- The amount of money they’ve earned over their lifetime: The Social Security Administration keeps track of employees’ earnings from the time they start working until they retire. The administration uses this information to calculate average monthly earnings, which are then used to determine benefits payouts.
- The age at which they start receiving benefits: American citizens can start receiving benefits as early as age 62 but doing so results in a lower monthly payment. Charlie Eissa says that if they wait until the full retirement age, they’ll receive 100% of the benefits they’re entitled to. For those born between 1943 and 1954, the full retirement age is 66 but, for those born after 1960, the full retirement age is 67.
- The amount they’ve paid into the system: Currently, the Social Security tax is set at 6.2% of an employee’s gross earnings and employers must pay an additional 6.2%. The self-employed pay the entire 12.4%. Of the 6.2% that employees pay, 5.3% goes into the Old-Age and Survivors Insurance trust fund and the remaining 0.9% goes into the Disability Insurance trust fund.
How the Social Security Administration Calculates Monthly Benefits
Now that we know the three primary factors that go into calculating benefits, Charlie Eissa takes a look at how the Social Security Administration arrives at a figure. To begin, the SSA will calculate an employee’s average monthly earnings during their 35 highest-earning years.
They’ll then adjust those figures for inflation and apply a benefit formula to arrive at the individual’s primary insurance amount, which is the amount they’ll receive at full retirement age. If the individual starts receiving benefits before their full retirement age, their benefits will be reduced explains Charlie Eissa.
The Social Security Administration offers a comprehensive calculator on its website where curious individuals can input their current information and receive an accurate estimate of their average monthly benefit. This amount maxes out at $3,345 but the average American earns about $1,666.49 a month.
Social Security Support Through Retirement
Charlie Eissa says that for most senior citizens, social security alone is not enough to cover all of their living expenses. According to the Social Security Administration, the average retired worker receives around $1,660 a month while the average retired couple receives $2,260. This leaves many retirees struggling to cover essential costs like housing, food, and healthcare.
In fact, a recent study found that 42% of Americans have less than $10,000 saved for retirement and 34% have no retirement savings at all. Charlie Eissa says that this lack of savings is compounded by the fact that Social Security benefits are only designed to replace about 40% of an individual’s pre-retirement earnings. This means that the majority of Americans will have to find alternative sources of income to supplement their government benefits.
How to Maximize Social Security Benefits
Although the Social Security Administration uses a complicated formula to calculate benefits, there are a few things that individuals can do to maximize their payouts. To start, workers should aim to earn as much as possible during their careers. Because benefits are based on an individual’s highest 35 years of earnings, it’s important to start saving early and contribute as much as possible to Social Security.
Additionally, workers should be aware of the fact that social security benefits are taxable. In fact, up to 85% of benefits can be subject to federal income taxes. As a result, workers should plan ahead and set aside money to cover these taxes. By following these tips, Charlie Eissa says that workers can ensure that they’re maximizing their social security benefits and giving themselves the best possible chance of a comfortable retirement.
The Bottom Line
Social security is a vital source of income for senior citizens but, for many, it’s not enough to cover all of their living expenses. By carefully calculating their estimated benefits and working hard to earn a higher income, seniors can earn up to $3,345 a month if they wait until the official retirement age.
