Social Security retirement benefits are designed to replace about 40% of the average American worker's earnings, to give retirees some security in the years of their retirement. However, the benefit formula is weighted in favor of lower-income workers and tends to replace less of higher earners' pre-retirement income. With that in mind, let's look at how much your Social Security benefit could be if you earn $100,000 per year throughout your career, which is on the higher end of the maximum earnings considered for Social Security benefits.
How the Social Security retirement benefit formula works
Your Social Security benefit is determined by your entire work record. Every year's earnings of your entire career are indexed for inflation, and then the 35 highest are considered when calculating your benefit. If you don't have 35 years of earnings, zeros will be used for the remaining years.
Once your 35 highest-earning years are determined, they will be averaged together, and then divided by 12 to calculate your average indexed monthly earnings.
Your monthly average is then applied to a formula to calculate your benefit. As of 2017, the formula is:
- 90% of the first $885.
- 32% of the amount above $885, but less than or equal to $5,336.
- 15% of the amount above $5,336.
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Predicting your Social Security benefit if you make $100,000 per year
Before we answer how much you'll get from Social Security if you make $100,000, it's important to clarify what this means. The fact that you make $100,000 in any single year has little impact on your Social Security benefits, since it's only one of 35 years taken into account.
Since Social Security is based on your highest 35 years of inflation-adjusted earnings, we can calculate your projected Social Security benefit in today's dollars, if your career average earnings are $100,000 per year. Note that this is a ballpark figure, especially if you're relatively young, as there's no way to accurately predict your earnings or changes in the Social Security benefit formula between now and your retirement.
How much will you get from Social Security if you earn $100,000 per year?
If your inflation-adjusted career average is $100,000 per year, that translates to a monthly average of $8,333. So we can calculate your benefit as follows:
- 90% of the first $885, which is $796.50.
- 32% of the next $4,451, which is $1,424.32.
- 15% of the remaining $2,997, which is $449.55.
So your calculated Social Security benefit if your career average earnings is $100,000 would be $2,670.37, which is just under the maximum possible benefit of $2,687 for someone reaching full retirement age in 2017.
Keep in mind that this calculation also assumes that you claim benefits at exactly your full retirement age. If you claim your Social Security benefit earlier or later than full retirement age, your benefit will be permanently decreased or increased, and you can read a thorough explanation of how this works. In our example, if your full retirement age is 66, claiming Social Security at 62 would reduce your benefit to approximately $2,003 per month, and waiting until 70 to claim would increase it to $3,525.
How much can you expect?
As I mentioned, there is generally no accurate way to predict your earnings between now and retirement, especially if you still have several years to go. In addition, few people will consistently earn the same round figure (like $100,000) throughout their career, so it's more useful to estimate your own benefit.
The best way to get an estimate of how much you can expect is to create an account at www.ssa.gov if you haven't done so already, and view your most recent Social Security statement. Not only can you find an estimate of your retirement benefit based on your current work record, but you'll also find other valuable information, such as your estimated disability and survivors' benefits and whether you'll qualify for Medicare benefits at 65.
