Social Security benefits are or will be a major part of most Americans' retirement income, so it's important to know how much to expect. While it's impossible to predict someone's Social Security benefit based solely on their current salary, by knowing how your monthly benefit will be determined, you can get a good idea of how much you could receive if you make $100,000 per year.
The short answer
If you currently earn a salary of $100,000 per year, it's impossible to tell you how much you should expect from Social Security based on that information alone. As we'll discuss in the next section, Social Security considers your 35 highest-earning years when determining your benefit, and each year is equally weighted in the average.
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In other words, any single year's income determines a small amount of your Social Security benefit. For example, if you earned $30,000 per year at the start of your career and grew your salary to $100,000 over 30 years, your Social Security benefit will be much different than someone who earned an inflation-adjusted $100,000 throughout his or her career.
With that in mind, here's a closer look at how your Social Security benefit is calculated so you can get a better idea of what yours will be.
How Social Security is calculated
As I mentioned, Social Security takes your 35 highest-earning years into account when determining your retirement benefit. These amounts (up to the annual taxable maximum Social Security wages) are indexed for inflation and averaged together, and then divided by 12 to calculate your average indexed monthly earnings.
This lifetime average is then applied to a formula to determine your primary insurance amount, or PIA, which is the Social Security benefit you would get if you retired at full retirement age. As of 2017, this formula is:
- 90% of the first $885
- 32% of the amount over $885 and less than $5,336
- 15% of the amount above $5,336
The Social Security Administration publishes an annual worksheet, which includes the maximum Social Security wages for every year since 1956, as well as inflation-index factors that are used for each year's earnings.
Finally, your benefit is adjusted based on the age at which you start Social Security benefits. If you claim Social Security before full retirement age (as early as 62), your benefit will be permanently reduced, while if you delay Social Security beyond full retirement age (as late as 70), your benefit will be permanently increased.
The point here is that there's a lot more to your eventual Social Security benefit than just your current salary.
If you average $100,000 throughout your career
Having said that, let's take a look at how much you could expect from Social Security if you average an inflation-adjusted $100,000 salary throughout your entire career. This would translate to monthly earnings of $8,333.
Applying this monthly average to the formula gives us:
- 90% of the first $885 ($796.50)
- 32% of the amount over $885 but less than $5,336 ($1,424.32)
- 15% of the amount above $5,336 ($449.55)
Combining the three parts of the formula gives you a PIA of $2,670.37. Remember that this assumes that you earned an average of $100,000 in Social Security taxable wages for 35 of your working years, and that you wait until your full retirement age to claim your benefits.
Taking Social Security at 62 in this situation would result in an initial monthly benefit of about $1,869, based on a full retirement age of 67, and waiting until age 70 would result in a monthly benefit of $3,311.
The best way to estimate your Social Security benefit
For a more personalized approach, you have a couple of options. If you're getting close to retiring and have 35 or more years of work experience, you can use the Social Security Administration worksheet I linked to earlier to calculate where your benefit currently stands.
Or you can create an account at www.ssa.gov if you haven't yet done so, and take a look at your most recent Social Security statement. This will have an estimate of your potential Social Security benefit based on your work record and estimated future earnings, as well as other valuable information, such as your eligibility for survivors', disability, and Medicare benefits.
