Once you reach a certain age, thoughts of retiring and collecting Social Security undoubtedly creep into your mind. After all, you’ve worked hard all these years and have earned these benefits, right?
You may look at your friends or family members who have retired, envying their free time and their monthly benefit checks. But how will your Social Security earnings compare to those of your peers?
That’s a complex question, with the answer depending on a variety of conditions. Nearly 49.4 million retired Americans were enrolled to receive retirement benefits as of May 2023, and their checks depend on how long they worked, their earnings at their job, when they started to collect Social Security and more.
To see how your Social Security might compare to that of your peers, and to view some numbers, it’s important to understand how the government figures out what your benefit will be. Let’s explore.
How Is Your Benefit Calculated?
The Social Security Administration uses a complex formula to determine the amount of the monthly benefit for each recipient. To start, Social Security looks at a worker’s lifetime earnings and applies the formula to determine the benefit, known as the primary insurance amount. Once that number has been figured, further calculations take place to come up with the financial benefit at full retirement age. That’s 66 or older, depending on your birth year.
The benefits you wind up receiving will depend on the age at which you take Social Security and any annual cost-of-living adjustments. Social Security can kick in at age 62, but at a reduced rate. The longer you wait to apply for your benefits, the higher payment you will receive.
How Do You Find Out Your Benefit?
Anyone 18 or older can create an online account with Social Security by going to www.ssa.gov/myaccount. From there, you can monitor your earnings and, once you have enough credits to qualify for benefits, you’ll find your projected retirement earnings at age 62, 65 or full retirement age.
How Does Your Benefit Compare to Other Retirees?
Let’s say you worked 45 years in a bank. Your spouse worked 45 years as an engineer. Will you receive identical amounts of Social Security benefits? No. Just as your paychecks weren’t the same, neither will be your Social Security direct deposits.
Social Security’s 2022 Annual Statistical Supplement gives you some idea about how much others receive in Social Security, based on age and gender. The report used the 2021 year-end figures, which are the latest available.
In December 2021, nearly 47.3% of retirees received an average of $1,658.03. Among them, men were paid an average of $1,838.08 while women earned $1,483.75.
According to the American Academy of Actuaries, the pay gap between genders, as well as a woman’s traditional role in the family, contribute to the disparity in pay when it comes to Social Security. Because the government calculates benefits based on lifetime earnings, women, in general, also earn less than men because of their breaks to have children, or care for children or other relatives.
So just how does your Social Security stack up against the average when it comes to your age and gender? The numbers below from Social Security’s 2022 Annual Statistical Supplement will give you an idea:
|Social Security Earnings By Age and Gender|
|100 or older||$1,549.17||$1,511.79|
|Source: Social Security Administration, Master Beneficiary Record|
How Can You Increase Your Benefits?
The simple answer as to how to get increased Social Security benefits in retirement is to work more. You must work at least 10 years or earn 40 “credits” under Social Security calculations, to qualify. But your earnings are based on the 35 years of your highest income. Each year over 35 that you work will knock out a year where you had low or no earnings.
If you’re approaching Social Security age, working a few more years at your high-paying job can eliminate some of those lower-paying, entry-level years and increase your benefits. However, that isn’t the only way to achieve maximum earnings. Here are some more options:
- While still working, move to a higher-paying job or add a side job to increase your annual pay
- Pass on collecting benefits at 62 and wait until full retirement age
- Apply for spousal benefits
- Ask your tax advisor how to minimize Social Security taxes
- Verify your earnings on your online Social Security account to make sure you’ve gotten credit for the full amount of your pay
In summary, Social Security is a complicated process. Before making any decisions about when to start collecting, consulting an advisor well-versed on the topic could assist in your planning.
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