By: Doktor Prax Evad | Contributing AOJ Journalist
It seems difficult to find something that lays out the formula for calculating an accurate estimate of what your social security retirement benefit is now or should be in the future. Thankfully I, the Doktor, have done the research and put together an Excel spreadsheet that calculates an estimate of your social security retirement benefit at highly customizable “retirement ages” and pre-retirement “future annual income amounts.” We call this the Association of Objective Journalists (AOJ) Social Security Retirement Benefit Calculator © or “AOJ SS Benefit Calculator” for short.
This AOJ SS Benefit Calculator (a sophisticated spreadsheet calculator) even allows you to choose a “stop working year” which can be before you start collecting (claim) social security retirement benefits. The reason for this earlier retirement age before claiming social security might be so that your benefit payout continues to grow. The payout can grow from additional/higher-income working years or by delaying past age 62. The payout roughly grows by 8% each year that you delay claiming beyond 62. You can delay claiming social security between the ages of 62 and ~70 with this growth increase of approximately 8%.
Primary Insurance Amount (PIA) and “Retirement Age” Impacts
The full retirement age (also officially referred to as Normal Retirement Age by the Social Security Administration) for most people who have not started collecting yet is 67, but the payout is less if you claim before 67 and the payout is more if you claim after 67. The amount that you would collect at full retirement age (67 for most) is referred to as the Primary Insurance Amount (PIA). PIA is often included in discussions of social security to provide “apples-to-apples” comparisons of how much social security value is built up by individuals. The other important aspect of full retirement age is that prior to full retirement age, one is penalized for earned income above very low thresholds while collecting social security; however, this article is about calculating social security retirement benefit and avoids covering areas outside benefit (Insurance Amount) paid.
Social Security Administration retirement benefit calculations are based on a granularity down to how old you are in years and whole months. Note that the AOJ SS Benefit Calculator is setup in years and fractions of years. For instance, 63 years and 3 months old is 63 ³⁄12 years old and is entered as 63.25 years in the calculator.
Historical Earned Income Variable in Calculating PIA
Social security uses 35 years of earned income history in determining your PIA. Earned Income is basically the amount of money you make based on your job through salary, bonuses, hourly wages, tips, etc. and on the Earned Income upon which Social Security Tax is collected during your working years. Also, Earned Income is NOT related to investment gains or income (i.e dividends). Note that on your pay stubs, Social Security Tax is often labeled as FICA, which stands for Federal Insurance Contribution Act. The average Earned Income is capped for each individual year because Social Security Tax is only collected on Earned Income up to the capped amount each year. The Social Security Administration uses the 35-year average of capped Earned Income in calculating your PIA and uses zeros for years that you do not work or have earned income. For example, if you work for 10 years making $50,000 per year, Social Security Administration would NOT determine your average Earned Income to be $50,000, but rather would determine it to be the 35-year average of 10 years at $50,000 and 25 years at $0, which is $14, 285. Number of years working is a huge factor in determining PIA, and note that you basically need a minimum of 10 years of work history to be eligible for social security retirement benefit, with notable exceptions, such as spousal social security benefit. The AOJ SS Benefit Calculator only deals with the primary beneficiary and not exceptions, such as spousal beneficiary rules.
Also, if you have more than 35 years of Earned Income, Social Security Administration will use the 35 highest years of inflation adjusted income in determining your average rather than simply the most recent 35 years of earned income, which the AOJ SS Benefit Calculator does for you. The AOJ SS Benefit Calculator allows you to analyze what continuing to work longer (more than 35 years) at higher earned income levels will do to your social security benefit, such as by substituting out lower paid years (which are typically at younger ages) with higher paid years.
Using the AOJ Social Security Retirement Benefit Calculator ©, you can fill in any values you want for future working years to test out various scenarios in calculating social security retirement benefit amount. For instance, let’s suppose that you work in a job that pays very well currently, but you are contemplating quitting so that you can pursue an encore career that is fulfilling but pays far less than your current career. You could enter your current salary as the salary for future years and compare that to a scenario where future year working income is reduced to the encore career level.
The income cap for collecting Social Security Tax each year is adjusted for inflation. The AOJ SS Benefit Calculator takes this into account for historical years of earned income. Since the calculator produces benefit calculations in today’s dollars, projected years of future income should be entered by you using real values (NOT inflation adjusted values).
Where can you find annual Earned Income? You can go to your tax returns, but for most of us, our social security Earned Income is shown on our W-2 forms (which are completed and mailed to us by our employers). You would need W-2’s from all your prior tax years. Alternatively, you can get your work history (Social Security Earnings Information) from the Social Security Administration. The Social Security Administration mails everyone a copy of their Social Security Statement that includes annual social security earnings, or you can get a statement by creating an account at mySocialSecurity. I got my info from the mySocialSecurity website since it is all neatly compiled there.
Penalizing the People Who Work Hard and Achieve
The government forces every worker to contribute toward their future retirement through Social Security Tax collection (FICA), which is later meant to be returned (after investment gains in short-term and long-term government bonds) to the worker in retirement as a Social Security Retirement Benefit payment. “What really separated Social Security from the other programs of the time—aside from being a Federal initiative instead of a State one—was that it was not a welfare initiative or a radical departure from the capitalist model to a socialist one. People earned Social Security through their work history by paying a portion of their income as a Social Security tax.” Hence, one would think that everyone’s social security retirement benefit should be the same percentage as any other person with the same work duration and retirement age. However, the government penalizes anyone who makes good decisions and is industrious by returning to them a much lower percentage of what they contributed than someone who achieved less earned income. Welcome to the Social Security Administration in specific, and to the increasingly leftist government in general…Comrade.
The Social Security Tax (FICA) is paid on Social Security Earned Income at 12.4%, with typically 6.2% taxation shown in the employee paycheck itself and the other 6.2% tax paid directly from the employer before issuing/settling pay. This number is a constant percentage and makes some sense regarding forced retirement savings/investment. However, the money returned from your contribution investments is generally a lower percentage the more money you earned. This is mathematically proven out in computations of the AOJ SS Benefit Calculator. To accurately estimate your social security benefit, the AOJ SS Benefit Calculator computes a payout of your average contribution based on the social security inflection points listed below:
|% of Avg Contribution Paid Back||Average 35 Year Contribution Monthly Amount|
|Avg Contribution -Bracket||Bracket |
Max Pymt (FRA)
Max Pymt (FRA)
|90%||$0 – $926||$833||$833|
|32%||$926.01 – $5,583||$1,490||$2,323|
|15%||$5,583.01 – $11,075||$824||$3,147|
|% of Avg Contribution Paid Back||Average 35 Year Contribution Annual Amount|
|Avg Contribution -Bracket||Bracket |
Max Pymt (FRA)
Max Pymt (FRA)
|90%||$0 – $11,112||$9,996||$9,996|
|32%||$11,113 – $66,996||$17,880||$27,876|
|15%||$66,997 – $132,900||$9,888||$37,764|
Scenarios to Examine Yourself
The AOJ Social Security Retirement Benefit Calculator © allows you to examine many scenarios to fit your individualized needs and analyze your individual concerns. Best of all, it is free to use for personal purposes. You can see how your benefits would change based on many situations, including but not limited to the following:
- Retirement age
- Working additional years at varying income levels
- Postponing claim of social security retirement benefit to gain increased payout percentage
- Taking early retirement and foregoing future years of earned income
 “Why Was Social Security Created in the First Place,” by David Budlin; November 23, 2016; www.disabilityexpertsfl.com