Current Social Security

Benefits

Simply, social security benefits are based the number of years during which you paid the tax and your average reported salary during the highest 35 of those years. This figure produces your benefit at normal retirement age. If you retire before that age, the annual benefit is adjusted downward to produce approximately the same total pay out, distributed over the additional years it will be paid. If you delay receiving benefits, the annual benefit is adjusted upwards, again to provide approximately the same lifetime pay out.

Of course, nothing in Social Security is actually simple....

First, not all salary dollars are equal. Salary dollars convert to benefit dollars in three stages, with the lowest contribution converting at the highest percent (90%) per salary dollar. The next two stages convert at 32% and 15%. (The dollar amounts shift from year to year, for those reaching 62 in 2005, the first $627 of monthly (adjusted) salary is included at 90%, the next $3152 at 32% and anything over $3779 at 15%.The net effect is that is a shifting of average benefit somewhat from those who earn the higher salaries to those who earn the lower ones.

Second, salaries are adjusted to reflect the equivalent salary at the current time. While much like a (retroactive) Cost of Living Adjustment, rather than using the change in the cost of living, it uses the change in average salary, which tends to provide a greater base salary and, therefore, a higher initial benefit.

Third, a retiree with a spouse and/or other dependent receives an additional percentage of the retiree's benefit, per dependent, up to a family maximum of between 150% and 180% of the retiree's benefit. Surviving spouses earn a percentage of would have been the retirees benefit based their age.

Finally, when both a husband and a wife work, both are required to pay the taxes, but can only claim the greater of their own benefit, or the benefit they would receive as their partner's spouse, not both.