                  A Factsheet from Social Security 



                 How Your Retirement Benefit is Figured



                                    
              U.S. Department of Health and Human Services
                     Social Security Administration
                      SSA Publication No. 05-10070 
                              January 1994
                               ICN 467100



How Your Retirement Benefit Is Figured

As you make financial plans for your future, one of the questions
you'll probably ask is,  How much will I get from Social
Security?  For most people, the answer can be found in a benefit
estimate statement available free from Social Security. (You can
call or visit any Social Security office to get the form you need
to request this statement.) It tells you how much you can expect
when you retire, and also provides estimates of the disability
benefits you might be eligible for and any benefits payable to
your family if you should die.

While the benefit estimate statement is a helpful and useful
tool, many people still wonder how their benefit is figured. This
factsheet answers that question.
Steps In Figuring A Social Security Retirement Benefit
Social Security benefits are based on earnings averaged over most
of a worker's lifetime. This is different from many other pension
plans that are usually based on a relatively small number of
years of earnings.
 
Although a computer does all the work, the method for figuring
retirement bene- fits goes like this. (Disability and survivor
benefits are figured a little bit differently.)

Step 1 First, your earnings covered by Social Security are listed
starting with 1951.

Step 2 Next, your earnings are adjusted for changes in average
wages over the years.  For example, average earnings for 1992 are
five times greater than average earnings were for 1964. To make
1964 earnings comparable with current earnings, they are
multiplied by five. Earnings are adjusted for each year up to the
year you reach age 60. The adjustment factor becomes smaller the
closer you get to the present. After you reach age 60, actual
earnings are used.

Step 3 From this list, the highest years of earnings are selected
to figure your benefit. For nearly everyone retiring now and in
the future, 35 years of earnings are used to figure retirement
benefits. If you haven't worked for 35 years, we'll add years of
 zero  earnings to your record to total 35 years.


Step 4 The earnings for these years are totaled and divided by
420 (the number of months in 35 years) to get your average
monthly earnings. This is the number used to figure your benefit
rate.

Step 5 A three-level formula is applied to your average monthly
earnings to arrive at an actual benefit rate. For example, for
people born in 1932:

We multiply the first $422 of your monthly earnings by 90
percent.

We multiply the next $2,123 of your earnings by 32 percent.

We multiply any remaining amount by 15 percent.
The results are added together and rounded to the next lower
dime. This is your basic full retirement age (currently 65)
benefit rate.

A new formula is set each year for people reaching 62 that year.
The percentages remain the same, but the dollar amounts change.
Even if you don't retire until later, we'll figure your benefits
using the formula based on the year you turned 62. We don't use
this formula if you also get or are eligible for a pension based
on work usually a government job where you didn't pay Social
Security taxes. For more information about this, ask for a copy
of A Pension From Work Not Covered By Social Security,
(Publication No. 05-10045).

Cost-Of-Living Increases

You're eligible for cost-of-living benefit increases starting
with the year you become 62. This is true even if you don't get
benefits until 65 or even 70.

This means your basic benefit is multiplied by all of the
cost-of-living increases starting with the year you reach 62 up
to the year you start getting benefits. Social Security benefits
are paid in even dollar amounts, so your benefit is reduced to
the next lower dollar.

Reduced Benefits

We told you how your full retirement benefit (the amount payable
at 65) is figured. You can start getting benefits as early as 62,
but at a reduced rate.

Your benefit is reduced by five-ninths of one percent for each
month you get benefits before 65. This amounts to a 20-percent
reduction if you get benefits at 62. But, since benefits can be
paid only for months you are eligible throughout the entire
month, you can't get a benefit for the month you reach 62 unless
your birthday is the first or second of the month. So, chances
are your benefit won't be reduced the whole 20 percent.
The closer you are to 65 when benefits start, the smaller the
reduction. For example, the reduction is 13 percent at 63, and 6
percent at 64.

Any Questions?

You can get more information 24 hours a day by calling Social
Security's toll-free number, 1-800-772-1213. You can speak to a
service representative between the hours of 7 a.m. and 7 p.m. on
business days. If you have a push-button (tone) phone, recorded
information and services are available after 7 p.m. weekdays and
all day on weekends and holidays.

Hearing-impaired callers using  TDD  equipment can reach Social
Security between 7 a.m. and 7 p.m. on business days by calling
1-800-325-0778.

If you want to speak to a representative, the best times to call
are early in the morning and early in the evening. And if you
can, it's best to call later in the week and later in the month.
When you call, have your Social Security number handy.

The Social Security Administration treats all calls
confidentially whether they're made to our toll-free numbers or
to one of our local offices. We also want to ensure that you
receive accurate and courteous service. That is why we have a
second Social Security representative monitor some incoming and
outgoing telephone calls.












