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As workers approach their retirement years, many ask one critical question: “How much money will I (or we) get from Social Security?”
In January 2024, the estimated average monthly Social Security retirement benefit for a retired worker was a little more than $1,900. Is that how much you’ll get? Probably not, as that’s an average and everyone’s benefit is different.
The answer to how much you’ll get comes in four parts.
1. Amount paid into the system
First, the size of your monthly payment in retirement depends on how much you have paid into the Social Security system.
Currently, workers pay 6.2 percent of their income into the Social Security system via the FICA taxes on their paychecks. Each year, this 6.2 percent contribution continues until they reach the Social Security wage base. In 2025, the wage base is $176,100. That means the most a worker can pay into the system in 2025 is $10,912. This 6.2 percent is matched by the employer up to the announced wage base, which changes almost every year. Self-employed workers pay both sides of this FICA tax also up to the wage base amount. (Related: Freelance tax challenges)
Each year the Social Security Administration (SSA) keeps track of these contributions. As the years go by, the benefits start to add up. The size of the monthly retirement check is based on the average of the highest, not consecutive, 35 years of a worker’s career. If you pay into the system for more than 35 years, the lower years of contributions are replaced by the higher earnings years in the 35-year average.
A complicated formula is used to arrive at something called the Primary Insurance Amount (PIA).
The PIA is paid to the worker at a rate of 100 percent if their benefits start at full retirement age. For everyone born in 1960 or later, full retirement age starts at 67.
2. When you start Social Security benefits
Most people can start collecting benefits as early as age 62, but the monthly amount of the payment will be reduced by a percentage reflecting the number of months until full retirement age. For example, if the PIA payment at full retirement age is $1,000 a month but the worker starts the payments at age 62, the size of the check is reduced to $700 a month.
Why the reduction? Because filing early ostensibly means you’ll receive benefits from Social Security longer. So, the government reduces monthly payments so that the overall benefit (based on your lifetime contributions) will stretch out over that longer period of time.
The starting date of the payment can be deferred up to age 70. As a reward for delaying the payments, a worker can increase the payment by 8 percent simple interest per year between age 67 and 70. If the payments are not started until age 70, the $1,000 a month check at 67 becomes a $1,240 check at age 70. This increase of 8 percent per year is called a delayed retirement credit and it is re-calculated each month. As a result, if the worker starts benefits at age 67 and 6 months, they will receive a 4 percent increase. (Related: 4 simple ways to delay Social Security)
It is important to remember that there is never a reason to delay starting Social Security benefits past age 70 because delayed retirement credit increases all stop at age 70.
Clearly, when benefits start generates a big difference in monthly payments. The difference between starting at 62 and starting at 70 is a 77 percent increase.
So when should a worker start benefits?
There are two big reasons to start taking benefits early.
- Longevity or a short life expectancy.
- The need for income.
A worker with a short life expectancy or a need for immediate income may decide to start early. Conversely, a worker with good longevity expectations or the low need for immediate income could delay taking benefits and deferring until sometime after full retirement age.
3. Longevity
It is clear to see that longevity is the unknown wild card in the benefit maximization formula. A worker must be alive to collect the money. While no one really knows the clear answer to the longevity question, there are many clues available to help someone make a good decision.
- How long did your parents live?
- How is your health?
- How much stress is in your life?
- What do you do from a lifestyle perspective?
- How about your diet?
- How about exercise?
The internet is full of longevity calculators. Some are comprehensive and some are very basic. There is a basic longevity calculator on the Social Security Administration website. It is a generic representation of longevity, but it is a good place to start. (Related: What's your retirement plan for living longer?)
If you want another opinion, have a look at the American Academy of Actuaries Longevity Illustrator. There, you will be able to enter two lives on the same report, which can be very helpful for married couples.
4. Marital Status
For workers aged 62 or younger, the number of age-based filing choices is nine. This expands from a maximum of nine for a single worker to a maximum of 81 for married couples. Any of these age-based choices will either reduce or expand the amount of the monthly benefit checks.
Married couples also qualify for two other major benefits.
- One major benefit is called the “spousal” benefit. This benefit helps guarantee that a non-working or lower-income spouse will receive up to 50 percent of the higher-income spouse’s benefit.
- The second major benefit is called the “survivor” benefit. The survivor benefit pays the higher amount to the surviving spouse for the rest of their life. For example, if Bob’s benefit is $3,500 when he dies, Mary, his wife, will receive either $3,500 or her own benefit if it is higher.
It is very important to understand that Social Security survivor benefits are quite different from Social Security spousal benefits. And survivors will have several different choices that are not available to spouses while both are alive. (Learn more: Social Security spousal and survivor benefits: Different and not equal)
Conclusion: Putting all 4 together
Clearly, these are all dynamic, interrelated, and moving targets. Additionally, the SSA makes regular adjustments, particularly cost-of-living adjustments tied to inflation, that affect the amount of benefit payments. Of course, there are taxes, which affect how much you will actually pocket. And, in the back and forth of government budget concerns and administrative policies, there may be changes in the future about the size, timing, and taxation of Social Security benefits.
Yet, as a starting point, all four variables above are what must be considered at the outset to determine how much an eligible worker or couple will receive from the Social Security system.
To help make these calculations easier, there is help available.
- Everyone should have online access to their full Social Security statement on www.ssa.gov. That is the first step. And that step should be repeated at least once a year. (Related: How to get your SSA Blue Bar Report)
- The next step, because there are so many moving parts, is to use software planning tools that will model the many different choices in real time. Many people, especially those with a range of savings and assets, opt to consult a financial professional for help with such planning. (Learn more: 3 ways a financial professional adds value)
The key thing to remember is that this planning process is different for everyone. There is no “one-size-fits-all” rule that applies here. What determined the size of the benefit for one person or couple will not produce the same result for someone else.
Social Security is one of the largest assets many people bring into retirement. It is super important that workers understand their choices and see how they are all coordinated. Contact your local Social Security Administration office or log in to SSA.gov for more information.
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