Seniors must ensure they have a sufficient amount of retirement income to provide for their needs. For most retirees, their two primary income sources are Social Security and savings. This is why it’s so essential to understand how much retirement money will come from Social Security.
Unfortunately, many future retirees overestimate how much their retirement checks are worth. To make sure you avoid this retirement planning mistake, here are the facts you need to know about the typical Social Security benefit available to seniors.
This is the average Social Security retirement benefit in 2022
In 2022, the average Social Security benefit for retirees totaled $1,657 according to the Social Security Administration. This is the amount of each monthly check, so Social Security benefits provide around $19,884 per year in income to the typical senior. This amount of money is unfortunately well below what the majority of older Americans need in order to live comfortably.
The average Social Security retirement benefit does increase in most years. For example, it was $1,565 in 2021. The amount of income these benefits provide rises over time because of the impact of wage growth and inflation and because of Cost of Living Adjustments that are built into Social Security to help ensure benefits don’t lose buying power over time.
While this means future retirees may see a higher average benefit, it’s still crucial to be aware of the limitations of retirement checks. Specifically, Social Security is designed to replace an average of 40% of pre-retirement earnings for most people. And it replaces a smaller percentage of pre-retirement earnings for wealthier Americans because the benefit formula is progressive.
Will your benefit exceed the average, equal it — or fall below it?
Although knowing the amount of the average benefit helps current and future retirees accurately understand the role Social Security plays in providing for their retirement, it’s also important to realize each person’s individual benefit may differ from this average — sometimes substantially.
See, retirement benefits are calculated based on a percentage of average wages over your 35 highest earning years. This means people who earn a salary below average for most or all of their career can expect smaller benefits while workers with a higher income can expect larger checks. Those who work less than 35 years may also get a smaller benefit because the average wage their benefits are based on will be calculated with some years of $0 wages included.
Social Security also imposes penalties on people who file early. This is defined as claiming benefits before full retirement age. And it provides a monthly benefits increase due to delayed retirement credits for seniors who don’t receive their first payment until after full retirement age. FRA is between 66 and 67 depending on birth year, so claiming before or after this designated age increases the chances your benefit will either fall below the national average or exceed it.
Ultimately, the best way for each person to find out how much their income will be is to check their Social Security account online. This website provides an estimate of future benefits based on chosen retirement date as well as income earned to-date. It’s more accurate the closer to retirement a person gets.
After checking your benefits, chances are good you will see they’re unlikely to be able to support you without supplementary income. With knowledge of how far your benefits will go, you can make an informed choice about the additional funds your savings must produce to enjoy a secure retirement.
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