Social Security Benefits: How Much Will Yours Be?

How much will your Social Security benefits be in dollars? That is a key retirement planning question for most people.

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It’s also the target of simple financial curiosity. And the answer has major practical consequences. Social Security plays a big part in determining what your overall, total annual income will be in retirement.

After all, Social Security typically provides 12% of what your preretirement income was if that amount was $300,000, according to J.P. Morgan Asset Management. But Social Security ends up replacing 51% of your income if you earned $60,000 before retirement.

Social Security typically replaces 38% of your income if your preretirement income was $100,000.

Social Security Benefits: How Large Will Yours Be?

So, knowing how large your Social Security benefits will be in dollars has big implications for your pocketbook. The gap between your Social Security benefits and the annual income you need in retirement is an amount that most people must provide on their own, from their retirement savings.

That means that knowing how much your Social Security benefits will be is vital to figuring out how much you need in retirement savings.

Further, don’t you want to know how your benefits compare to other people’s?

Average U.S. Social Security Benefit

To see where you stand, let’s start with these benchmarks as of Dec. 31:

• Average U.S. benefit: The average monthly benefit for a retired worker is $1,623. That’s $19,476 per year.
• Full retirement age (FRA): The maximum starting benefit for someone who begins to collect at what the Social Security Administration calls full retirement age, if FRA is 67, is $3,568. That’s $42,816 yearly.
• Maximum monthly benefit: The maximum starting benefit for someone who begins to collect at age 70, the age at which further delay will not increase the dollar amount, is $4,194. Annually, that’s $50,328.

Your Social Security benefits depend on your income in each of your 35 highest-income years. It also depends on your age when you start to collect. For every year you delay claiming your benefits past your FRA up to age 70, you get an 8% increase in your benefit.

Benefits Starting At Age 65

Since people’s benefits vary based on income in their highest earning years and starting age, no simple chart can show you starting benefits for everyone.

But we can run the numbers and show you starting benefits for you if your age and income match certain criteria.

For example, let’s say you are 60 years old. You plan to retire at age 65. After receiving annual pay raises of 1%, your pay at retirement will be $80,000. Let’s also suppose that your career pay pattern is typical. Also, imagine that inflation will be 2.9% a year. In that scenario, as a single person your Social Security benefits will start at $1,744 a month, or $20,929 annually, according to the bankrate.com.

If your pay at retirement will be $100,000, your benefits will start at $2,026 each month, which equals $24,315 per year.

And if your pay at retirement will be $125,000, your monthly benefits at the outset will be $2,407 for $28,889 yearly.

Here’s a summary tally of those starting benefits:

• Final pay of $80,000: benefit of $1,744 monthly, $20,929 yearly.
• Final pay of $100,000: benefit of $2,026 monthly, $24,315 yearly.
• Final pay of $125,000: benefit of $2,407 monthly, $28,889 yearly.
• Final pay of $200,000: benefit of $2,764 monthly, $33,173 yearly.

Social Security benefits are higher for married couples.

Advantage Of Delaying The Start Of Benefits

Now let’s revise that situation. Delay retirement by five years. That’s the only change in assumptions. But it turbocharges your starting Social Security benefits.

Let’s say you are 65 years old, and plan to retire at age 70. Your starting benefits are much higher.

And that’s true even though it took you five more years to reach the same final pay levels of $80,000, $100,00 and $125,000. That longer time frame means your pay year by year was lower until you reach the same final income. Still, your starting Social Security benefit is higher.

That’s how the government encourages people to postpone starting their benefits. Here’s the starting benefit for each of those same final annual incomes, if you wait until age 70:

• Final pay of $80,000: benefit of $2,433 monthly, $29,196 yearly.
• Final pay of $100,000: benefit of $2,811 monthly, $33,737 yearly.
• Final pay of $125,000: benefit of $3,387 monthly, $40,644 yearly.
• Final pay of $200,000: benefit of $3,547 monthly, $42,562 yearly.

Those amount to hefty increases. In those scenarios, delaying the start of your benefits by five years boosts your starting benefit by about 40%, 39%, 41% and 28%, respectively.

Now you know how much your starting benefits will be if your circumstances match those scenarios.

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and active mutual fund managers who consistently outperform the market.

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