Social Security Benefits: How Much Income Will You Receive in Retirement? | business news

Social Security is a major source of income for millions of retired workers, but many Americans are misinformed about the program. For example, according to Nationwide, 44% of adults not currently receiving benefits have no idea how much monthly income Social Security will provide. This can lead to problems with retirement provision.

According to the Social Security Administration (SSA), Social Security benefits replace, on average, 40% of preretirement income. Last year, the average monthly benefit paid to newly retired workers was $1,754. But the age at which you apply for Social Security plays a big part in determining how high the income benefits are.

Here’s what you should know.

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How Social Security benefits are calculated

The amount of your old-age pension is based on your lifetime earnings and your age when you applied for social security. Retirees who claim Social Security before full retirement age (FRA) are permanently penalized with a reduced benefit, while retirees claiming Social Security after FRA are permanently rewarded with a higher benefit.

Retirees claiming Social Security benefits at age 62

Life expectancy at age 62 is about 20 years for men and 23 years for women, according to the SSA.

Men: In 2021, the average benefit paid to retired men who filed for Social Security at age 62 was $1,366 per month, or $16,392 per year. Assuming a life expectancy of 20 years, the income from Social Security benefits would be $327,840.

Women: In 2021, the average pension paid to retired women filing for Social Security at age 62 would have been $1,089 per month, or $13,068 per year. Assuming a life expectancy of 23 years, the income from Social Security benefits would be $300,564.

Retirees Claiming Social Security Benefits at Full Retirement Age (FRA)

The full retirement age is between 66 and 67, depending on the year of birth. According to the SSA, the life expectancy of men in FRA is around 17 years and that of women around 20 years.

Men: In 2021, the average benefit paid to retired males claiming Social Security in FRA was $2,300 per month or $27,600 per year. Assuming a life expectancy of 17 years, Social Security income would be $469,200.

Women: Last year, the average pension paid to retirees who filed for Social Security with FRA was $1,823 per month, or $21,876 per year. Assuming a life expectancy of 20 years, Social Security income would be $437,520.

Retirees claiming Social Security benefits at age 70

Life expectancy at age 70 is about 15 years for men and about 17 years for women, according to the SSA.

Men: In 2021, the average pension paid to retired men filing for Social Security at age 70 would have been $3,156 per month, or $37,872 per year. Assuming a life expectancy of 15 years, income from Social Security benefits would be $568,080.

Women: In 2021, the average pension paid to retired women filing for Social Security at age 70 would have been $2,470 per month or $29,640 per year. Assuming a life expectancy of 17 years, the income from Social Security benefits would be $503,880.

How Much Social Security Income Can You Expect to Have in Retirement?

As already mentioned, life expectancy changes with age. For example, the life expectancy of men at birth is 76 years, but men who actually live to age 76 have a life expectancy of almost 11 years. This means that deciding when to apply for benefits should be based in part on your life expectancy.

With that in mind, this chart is based on life expectancy at age 62—the age at which entitlement to Social Security retirement benefits begins. In other words, the chart assumes that men in all three age groups will live to age 82, and it assumes that women in all three age groups will live to age 85.

Additionally, the chart is based on the average old-age pension paid to new beneficiaries who started Social Security in 2021 at age 62. Anyone who turned 62 last year (and applied for Social Security) would have had their pension reduced by 29.17%. I reversed this cut to estimate the social security income for people applying to the FRA.

Similarly, anyone who turned 62 in 2021 would have received a 25.3% deferred retirement credit had they claimed Social Security retirement benefits at age 70. I used this credit to estimate Social Security income for people claiming at age 70.

Pensioner

62 years old

Full retirement age

70 years old

men

$327,840

$351,010

$348,060

Women

$300,564

$335,181

$346,845

Data Source: Chart by Author.

People aged 62 can use the chart above to get an approximate idea of ​​how much total income they could receive from retirement benefits, depending on when they file for Social Security. However, the exact amount you receive depends on your lifetime income. For a more accurate estimate of your future benefits, you can use the my social security Account Portal.

As a caveat, it is impossible to predict the cost of living adjustments (COLAs) that will be applied to benefits over the coming years. But COLAs are designed to offset the effects of inflation, meaning they theoretically leave the purchasing power of benefits unchanged. In other words, the income figures presented in the chart express purchasing power in 2021 dollars.

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