When it comes to Social Security, people tend to fall into one of two camps. Either they plan to rely on it to cover the vast majority of their retirement expenses, or they believe it won't be around for them at all. Both views are wrong. But figuring out exactly how much Social Security will cover for you is a little more complicated than you might think.

You can estimate your monthly benefits using the formula below or by creating a my Social Security account if you want a shortcut. But unless you plan to sign up for benefits soon, this number might not be completely accurate.

Social Security cards with $100 bill

Image source: Getty Images.

How your Social Security benefits are calculated

The first step in calculating your monthly benefit amount is figuring out your average indexed monthly earnings (AIME). You do this by totaling up your income from your 35 highest-earning years adjusted for inflation, dividing by 420 (the number of months in 35 years), and rounding down to the nearest dollar. If you want to calculate this for yourself, follow the steps in this worksheet

If you haven't worked 35 years, you'll have to include some zeroes in your calculation, and this will weigh down your average. Individuals who haven't worked for long enough to earn at least 40 credits (where a credit is defined as $1,410 in earnings in 2020 and you can earn a maximum of four credits per year) are not eligible for Social Security benefits based on their own work records. 

There's a maximum income ceiling for each year, which you can find in the worksheet mentioned above. In 2020, this is $137,700. This is the most income an individual will pay Social Security taxes on this year, so any additional income will not help raise Social Security benefits in retirement.

Once you have your AIME, you can calculate your benefit using a formula. The one for those who first became eligible for Social Security in 2019 follows:

  1. Multiply the first $926 by 90%.
  2. Multiply any amount over $926 and up to $5,583 by 32%.
  3. Multiply any amount over $5,583 by 15%.
  4. Add up all three numbers from the steps above and round down to the nearest dollar.

This is your Social Security benefit at your full retirement age (FRA), which is 66 or 67, depending on your birth year. But several factors, including the age at which you begin taking benefits, could net you more or less than this.

How the age you start benefits affects your Social Security checks

You can start collecting benefits as early as 62, but then you'll get smaller checks to account for the extra months you're receiving benefits. The Social Security Administration reduces benefits according to the following formula:

  • Your checks are reduced by 5/9 of 1% for each month you receive benefits before your FRA, up to 36 months.
  • If you begin benefits more than 36 months early, your benefits are further reduced by 5/12 of 1% per month over 36 months.

To give you an example of how this works, let's say you have an FRA of 67 and decide to begin benefits as soon as you turn 62. You'd lose 5/9 of 1% for each of your first 36 months and 5/12 of 1% for each of the remaining 24 months you're claiming benefits early, resulting in a monthly check that's only 70% of what it would have been if you'd waited to begin claiming Social Security until you were 67. Those with an FRA of 66 who begin benefits at 62 will only get 75% of their scheduled benefit per check.

Those interested in increasing their monthly checks should consider delaying their retirement benefits. For each month that you delay benefits past your FRA, your checks increase by 2/3 of 1%. This maxes out at 70, when you receive 124% of your scheduled benefit per check if your FRA is 67, or 132% if your FRA is 66. 

You can use this information to calculate your benefits at any given age to figure out which starting age offers you the most benefits overall. Just multiply your benefit amount at a given age by the number of months you expect to receive benefits. For example, if you expect to get $1,000 per month and think you'll claim benefits for 20 years (240 months), that's $240,000 overall.

Other factors influencing your Social Security benefits

The above calculations are easy to do if you're close to claiming Social Security already and have an accurate estimate of your AIME. But if you're a ways off from retirement, it can be difficult to estimate what your AIME might be because you don't know how your income will change between now and when you begin claiming benefits. In that case, all you can do is make an educated guess and periodically redo your calculations to see how your estimates change over time.

Cost-of-living adjustments (COLAs) will also influence your Social Security benefits. Each year, the Social Security Administration institutes a COLA to help benefits keep pace with inflation when prices rise. This will increase the size of your checks over time, but it may not increase their value, depending on how quickly inflation rises.

Then, there's the future of Social Security, which has sparked a lot of panic, particularly among younger workers who fear the program won't be around when they retire. It's true that the program's trust funds will be depleted by 2035 unless the government makes changes. But even if it doesn't, Social Security would still be able to pay out 80% of its scheduled benefits until 2090, so it's not going anywhere. But that doesn't mean it won't change. Proposed changes include decreasing benefits, reducing COLAs, or raising the FRA, all of which could hurt the value of your Social Security checks. 

So how much will you actually get from Social Security? It's hard to say. You can use the information above to calculate an approximate benefit, but note that this could change as your income fluctuates and the government decides how Social Security will continue. It'll still be there for you, but make sure you have plenty of personal retirement savings to fall back on in case Social Security doesn't go as far as you'd hoped. It's always better to underestimate your benefits than to overestimate them.