Calculating Your Social Security: 5 Tools to Optimize Benefits

Daniel Penzing
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How Dependent Are You on Social Security?

Social Security offers some of the most stable retirement benefits available. If you've collected social security benefits during your working life, you're one of the 53 million Americans that will rely on Social Security for a decent standard of living during your retirement years.

However, if you're a baby boomer with or without a working spouse, you have one big question hanging out. That question is, "Will my Social Security benefits provide a secure retirement?"

Your answer to that question will depend on many factors that are unique to your situation. To get the answer, you need to understand Social Security benefits.

To help you understand Social Security benefits, here are five tools to give you the information you need.

Calculate your Modified Adjusted Gross Income

The Social Security Administration (SSA) uses the current year's income to calculate your benefits. Your current income is part of a larger number called your Modified Adjusted Gross Income, or MAGI.

To get your MAGI, start with your gross income. Then add back in any amounts that the SSA doesn't include when calculating your income. The agency excludes amounts you receive as deductions on your tax return. For example, the SSA excludes the value of your employer's contributions to your 401(k) plan.

Use the SSA Calculator to Check Your Most Recent Benefit Estimate

Benefits Are Mostly Based on When You Retire

If you work while you’re young, you earn credits toward Social Security Retirement benefits. Once you turn 62 and are eligible to receive Social Security benefits, figuring out your exact benefits is not exactly a straight estimation, but based on the number of credits you have earned.

To determine your exact Social Security benefit, the Social Security Administration (SSA) looks at five key factors:

  • how much you made when you worked in the past
  • how long you have worked
  • how long you expect to live and

How much money you have saved in private retirement accounts.

Most of your benefits will be based on these factors – and, roughly speaking, the more money you have made and the longer you have worked, the greater your Social Security benefits will be. Benefits also increase if you have other sources of retirement income – such as a pension, a 401(k) plan or an IRA.

Social Security benefits can be intimidating because they are based on factors that you can’t control – how much you made in the past, how long you have worked and how long you expect to live. There are several tools that can help you optimize your Social Security benefits. These tools will help you figure out how much you will receive from the benefits.

Retirement Estimator

The Social Security “Do-Over” Strategy

If you recently became eligible for Social Security benefits, you might consider asking the Social Security Administration (SSA) to “do-over” your benefit application. This relatively new benefit is referred to as a “re-estimate” and allows you to correct errors in your initial application.

But it’s not always better to have your estimate reviewed. Read on to find out when it’s in your best interest to re-apply for your Social Security benefit.

How It Works

This process allows people to correct errors—such as working or claiming Social Security benefits that effectively cancel out any Social Security income—in their current applications. You must re-apply for Social Security benefits and request a “re-estimate” (this is not a re-application). If the SSA agrees that you’ve made a mistake in your uncorrected application, they will do a repayment calculation and add any extra benefits to your new application retroactively. Essentially, you can have the benefit amount recalculated after you’ve already accepted it.

Free Online Tools to Optimize Your Social Security Benefits

When you retire, you may be eligible for a part of the social security net. The number you receive is dependent on your salary and which years you worked. While the values may seem high to the prevailing salary sector, do not rely on it as the sole source of income. You need to create other sources to supplement the social security net. It may not be adequate enough to cover all your needs.

For those who are interested in maximizing their future social security net, this article will shed light on 5 free online tools you can rely on. Further, you’ll also find a full breakdown of the social security net.

Social Security Benefit Calculators

There are many social security benefit calculators that can help you calculate your estimated net value. You can run the numbers through each calculator and get an estimation of what you could receive.

— AARP Social Security Calculator

— SSA.gov Social Security Calculator at the Social Security Administration

— Annual Maximum Earnings Which Determine Social Security Benefits at the Social Security Administration

Calculate your net income based on your estimated payments from the Social Security Administration. Once you have the net income, you can decide whether or not it is enough to support your lifestyle.