By Russell Gloor, National Social Security Advisor at the AMAC Foundation, the non-profit arm of the Association of Mature American Citizens
Why is my Social Security Retirement Benefit So Small? – Ask Rusty
Dear Rusty: Can you help me understand? I have paid into Social Security since I started working in 1978. I did have a lot of tax deductions, but I don’t understand why I only receive $350 a month from Social Security. Signed: Befuddled Senior
Dear Befuddled Senior: Your Social Security benefit is based upon your average monthly earnings for the 35 years over your lifetime that you earned the most while contributing to the Social Security program (however, your benefit isn’t based on your contributions to SS). Your average lifetime earnings amount is called your “AIME” or “Average Indexed Monthly Earnings,” which are adjusted for inflation for years before you turn 60. Your earnings (your net earnings if self-employed) are provided to the SSA by the IRS. Your average lifetime earnings number (your “AIME”) is subjected to a formula which calculates your “Primary Insurance Amount” or “PIA,” which is the SS benefit you receive if you start benefits in the month you reach your full retirement age. Your personal full retirement age (FRA) depends on the year you were born which, if you were born in 1960 or later, is age 67. However, if you claim Social Security before reaching your FRA, you will get only a percentage of your PIA (reduced from what you would get if you claimed at your FRA).
For example, if you claimed at age 62, you would only get 70% of the amount you would have gotten had you waited until age 67, or if you claimed at age 63 you would get 75% of your age 67 benefit. The reduction is less as you get closer to your FRA; if you claimed at age 65, you’d get about 87% of your full retirement age amount.
You can see your lifetime Social Security earnings record at your personal “my Social Security” online account at www.ssa.gov/myaccount (you will need to first create that online account), or you can call Social Security at 1.800.772.1213 to request an “Earnings Statement” be sent to you. That statement will show your lifetime earnings by year, the 35 highest of which were used to calculate your PIA (your Social Security benefit at your FRA). Generally, your Social Security FRA benefit will be about 40% or less of your average indexed monthly earnings.
So, to recap, your SS retirement benefit isn’t based on your contributions to the program; it’s based on your average monthly lifetime earnings. If you had less than 35 years contributing to the program, SS would still use 35 years in the benefit formula by using zero dollars in earnings for some number of years, which would result in a smaller AIME. Thus, if you claimed before your full retirement age of 67, your SS benefit was reduced because you claimed early. And if you had less than 35 years of SS-covered employment, your AIME was less, resulting in a smaller PIA. And that is likely why your monthly Social Security retirement benefit is low.
One other thought to consider: if you are married and your spouse’s monthly SS benefit is considerably more than yours (e.g., more than twice as much as yours), you may want to explore your options for spouse benefits.
I hope this explains how your SS benefit is calculated, but if you still question your monthly SS retirement amount, I suggest you first obtain your “Earnings Statement” to review the lifetime earnings SS has on file for you. If there are any discrepancies in your Social Security’s earnings record, there are correction remedies available to you. If that is the case, please feel free to contact us again for more information.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.
