This article was updated on Dec. 20, 2017.
Millions of people expect that they'll rely on Social Security benefits in the future to help them in retirement. Yet many of those people have no idea how to estimate the amount they'll receive each month from Social Security. Fortunately, there are some simple ways to come up with estimates on what your Social Security benefit will look like down the road.
What the actual calculation looks like
Calculating your Social Security benefit involves a lot of work. The Social Security Administration looks at your earnings throughout your career, applying an index factor that takes inflation into account for the early years of your work history. After indexing all earnings for comparison purposes, the SSA takes the 35 years with the highest indexed earnings. It then adds the figures for all 35 years together and divides by 420, the number of months in those 35 years.
The result is your average indexed monthly earnings, but this is only the starting point for your actual benefit. You'll then need to use a special formula to come up with your primary insurance amount. For those turning 62 in 2018, you take your average indexed monthly earnings. Multiply the first $895 of that amount by 90%. For every dollar between $856 and $5,397, multiply by 32%. Finally, add in 15% for any amounts over $5,397.
The primary insurance amount gives you your baseline monthly benefit if you take payments at full retirement age. However, that's not the end of the calculation, because you then need to incorporate any adjustment for taking benefits earlier or later than your full retirement age. For those whose full retirement age is 66, your benefit can be as little as 75% of your primary insurance amount if you claim at age 62, or as large as 132% of your primary insurance amount if you claim at age 70.
An easy cheat sheet
The SSA knows that doing this calculation is complicated, so they've offered a number of resources you can use to estimate your benefits. The Social Security Quick Calculator can give you a cut-and-dried estimate based on your current earnings. In doing so, it makes assumptions about your past and future earnings. If those assumptions are wrong, then the estimate will be inaccurate. But for those who have relatively smooth earnings over their careers, the quick calculator is a good starting point.
The Online Calculator is the next step up from the SSA. With it, you input your own earnings for every year that you worked in the past. You'll also put in your current year's wages and will assume a certain amount for next year and beyond. This tool provides a more accurate estimate, because it uses the actual work history numbers that you provide. However, it's still limited by its future assumptions.
The Retirement Estimator provides even more information. It does much of the work for you, directly accessing your Social Security records to fill in blanks that you'd have to enter yourself with the calculators above. However, it only works if you have enough credits to qualify for benefits, and you aren't receiving benefits on your own or another person's work record right now.
Finally, the Detailed Calculator offers the deepest dive into your benefits, including not just future retirement benefits but also past benefits. Dependent and survivor benefits are also available, but even here, integration of those benefits with one's own retirement benefits is incomplete.
You won't know exactly what your Social Security benefits will be until your career is over and you decide when you're going to file to start getting checks. However, these methods will give you a useful estimate that you can use in your financial planning to prepare for retirement.