Americans looking to retire should save and invest diligently to ensure they have enough for their post-work life. But they can also take some comfort in knowing they will likely receive monthly income from the federal government.
The U.S. Social Security Administration (SSA) expects to distribute over $1 trillion to retirees each year. Beneficiaries can receive an amount based on a percentage of their pre-retirement income as soon as they turn 62.
As of November 2020, the average Social Security check benefit for retired workers was $1,522.70 per month. However, this may not be enough to cover basic living costs, so it’s important to learn ways you can receive more.
- Key factors in determining your benefit amount are your past earnings and how long you can wait until you collect.
- Due to lower earnings in the labor market, women and racial minorities often have lower benefit payments.
- The longer you wait to draw your social security, the more you will receive. Spouses receive an amount based on when you began drawing benefits.
Below, we’ll examine how Social Security payments are calculated and the factors that impact what a retiree can receive.
Calculating Social Security Payments
Two key factors impact what you could earn from Social Security:
- How much you made in your pre-retirement life; even earnings after retiring from a job can lead to an increased Social Security benefit.
- How long you are willing or able to wait before collecting
It’s impossible to predict with perfect accuracy how much you’ll receive from Social Security when you retire because the government can adjust the level of benefits. Moreover, benefits are based partially on your pre-retirement income level, which may fluctuate during your lifetime.
That said, if you are curious about how much you might receive from Social Security, the government offers a quick calculator that will give you a rough estimate. Results are based on your current earnings and birthdate. You can view the results in today’s dollars or inflated future dollars.
For 2021, the SSA expects to pay a maximum benefit of $3,895 per month to retirees who delayed their benefits until age 70 and who earned maximum taxable earnings since age 22.
For example, based on the SSA’s calculator, a person who plans to retire at age 70 in January 2025 after earning $100,000 during their last year of employment could receive an estimated monthly benefit of $3,121. On the other hand, someone who plans to retire at age 62 in January 2025 after earning $100,000 in their last year of employment would potentially collect $1,760 per month. If this 62-year-old earned $75,000 in their final year of work instead, their monthly benefit could be $1,422.
Women and Racial Minorities Often Earn Less
Unfortunately, women generally receive a lower monthly benefit than men. This is a product of income level, as women have historically earned less than men. In 2019, women age 65 and older received an average annual Social Security income of $13,505, compared to $17,374 for men. That’s about $1,125 per month for women and about $1,447 per month for men. The SSA notes that these lower benefits correlate to lower lifetime earnings and more part-time work.
Keep in mind that the further away you are from retirement, the less accurate the calculations are likely to be.
Women also tend to be more reliant on Social Security. The SSA notes that women at age 65 are expected to live about 21 additional years, compared to 19 years for men. Women reportedly represent 55.3% of all Social Security beneficiaries age 62 or older and about 64% of beneficiaries age 85 and above.
Meanwhile, Black men age 65 and older received an average annual Social Security benefit of about $14,409 in 2019, compared to Black women who earned about $12,806. That’s about $1,200 per month for men and about $1,067 per month for women. Again, this is due to lower lifetime incomes.
Despite these differences in benefit payments, it is worth noting that Social Security is designed to be progressive. Social Security benefits to lower-income earners represent a higher percentage of their pre-retirement income.
It Pays to Wait
The longer you wait to collect benefits, the higher your benefit will be based on the SSA's payment structure. So if you have enough retirement savings, you may be able to go several years before you start receiving Social Security benefits. This can ultimately result in more money.
You can start receiving Social Security benefits as early as age 62. However, if you collect at that age, you’ll only receive a percentage of your maximum retirement benefit. For example, if you were born in 1960 or later and retire at age 62, you will receive only 70% of the maximum benefit. If you wait until age 65, you’ll get 86.7%, and if you begin collecting at age 67, you’ll get the full benefit. Benefits for spouses range from 32.5% to 50%, depending on the year of collection.
If you were born between 1943 and 1954 and are willing to wait until age 70 to retire, you can receive up to 132% of the full retirement benefit.
It’s worth noting for those not yet near retirement age that Social Security benefits are expected to be available to be paid in full through 2037. However, after that, there may only be enough funds to pay 76% of scheduled benefits. The Social Security Board of Trustees believes increases in taxes could help prevent a lack of Social Security benefits for retirees.
The Bottom Line
It’s hard to know precisely what you’ll earn from Social Security until you begin collecting payments. However, you can work to maximize your payments by making as much as you can in your pre-retirement years and delaying collection as long as possible. While the average Social Security benefit was $1,522.70 per month in 2020, it is possible to earn more than twice that amount each month by combining higher lifetime earnings and patience.