Because Social Security is such a critical part of most people's retirement, it's more important than ever to know how your benefits are calculated.

1. How to Calculate
SOCIAL SECURITY BENEFITS

2. Because Social Security benefits are an
important source of income for retirees,
knowing how much you will receive is a
critical part of the retirement planning
process.

3. The good news is that figuring this
out isn’t hard.

4. In short, the size of your monthly benefits
is a function of your lifetime earnings.

5. Or, more specifically, it’s based on an
inflation-adjusted average of your 35
highest-earning years.

6. Ok, that’s a little complicated, so let’s
break it down.

7. The first thing the Social Security
Administration does to calculate
your benefits is to adjust your
past earnings to reflect inflation.

8. Let’s say, for example, that you
earned $50,000 in 1985.

9. In today’s dollars, after accounting
for inflation, that would be worth
nearly $100,000!

10. $-
$25,000
$50,000
$75,000
$100,000
1985 1990 1995 2000 2005 2010 Today
How Much is $50,000 in 1985 Dollars Worth Today?

11. Next, after normalizing your earnings
for inflation, the SSA takes an average
of your 35 highest-earning years.

12. Let’s assume this comes out to be
$75,000 a year, or $6,250 a month.

13. The monthly figure is then inputted
into a three-tiered formula, which
gives you progressively less credit
for higher levels of income.

14. 90%
Less than $816 $816 to $4,917 Over $4,917
You get credit for 90% of your first
$816 in average monthly earnings…

15. 32%
Less than $816 $816 to $4,917 Over $4,917
32% for earnings between
$816 and $4,917…

16. 15%
Less than $816 $816 to $4,917 Over $4,917
And 15% for average monthly
earnings above $4,917.

17. Based on this, someone who earned an
inflation-adjusted average of $75,000 a
year during their 35 highest-earning years
would receive $26,952 in annual Social
Security benefits if they apply for them at
full retirement – i.e., 66.

18. That equates to 36% of our
hypothetical retiree’s pre-
retirement income.

19. Needless to say, this probably
wouldn’t be enough to support
someone who previously earned
so much more.

20. In fact, most retirement experts say
we need at least 70% of our pre-
retirement income to continue living
comfortably in our twilight years.

21. This is why retirees need to think of
other ways to maximize the size of
their benefits even if they’ve already
reached retirement.

22. For example, a couple in Seattle
recently discovered a handful of
little-known “Social Security secrets”
that can boost a retiree’s income
by as much as $60,000.

23. They were shocked by how easy
it was to actually take advantage
of the loopholes.

24. And although it may seem too
good to be true, it's 100% real.

25. A MarketWatch reporter even
estimated that if more Americans
knew about these loopholes, the
government would have to shell
out an extra $10 billion every year!

26. Sounds interesting, doesn’t it?

27. To discover how these lucrative loopholes
could increase your income in retirement,
simply click here now to access a FREE
COPY of The Motley Fool’s latest report on
Social Security strategies that could
transform your retirement.