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We'll start with the sound-bite answer first -- and dig down a bit later. If you earn $75,000 per year, you can expect to receive $2,358 per month -- or about $28,300 annually -- from Social Security. While that alone might not be enough to continue living your current lifestyle, it will no doubt be a major contributor to your retirement income.
But there are a host of variables that can change this. To understand how they all interact, let's investigate the two biggest factors at play.
Lifetime earnings
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For starters, if you are taking in $75,000 per year, you're doing pretty well compared to the average American. Last year, the median household income -- which includes all members of a family -- in America was $56,516.
But the amount you're earning right now isn't all that matters when it comes to Social Security. That's because your full benefit is computed by taking the inflation-adjusted average of your 35 highest-earning years on record.
It might sound daunting to go back and calculate all of that right now, but the Social Security Administration has a handy calculator that does the heavy lifting for you right here.
Once you figure out your average earnings from those 35 years, the calculation of your annual benefits is pretty simple.
- You will receive 90% of the first $10,620on your average earnings (maximum of $9,558 annually).
- You will receive 32% for every dollar between $10,620 and $64,032 (maximum of $17,092 annually).
- You will receive 15% for every average dollar over $64,032 (maximum of $5,594 annually).
While your salary in the years to come is hard to predict, I usually like to assume that it'll decrease slightly every year until I retire, to build in a margin of safety for planning purposes.
When you retire matters
For those born before 1955, full retirement age clocks in at 66. But for those born after that date, full retirement age ranges between 66 and 67 years old.
But the important thing to note is that anyone can claim their Social Security benefits between age 62 and age 70. There is, of course, a trade-off: those who claim their benefits earlier have reduced payouts, while those who claim later can actually get more than their "full benefits."
To put this in perspective, let's assume that the person in question has earned an average of $75,000 and was born before 1955. Here's the annual payout that this individual can expect from Social Security, depending on their year of retirement.
Data source: IRS, author's calculations. All figures rounded to the nearest $10.
It should be noted that the Social Security Administration usually discusses such figures in terms of monthly benefits. I chose to do this in terms of annual benefits, because it is typically the way we think about the amount of money we need to maintain a certain lifestyle.
When should you claim?
There's no one-size-fits-all answer to this question. There are a million variables to consider, including the type of lifestyle you have, how much you enjoy your current job, your relative health, and what you want to do in retirement...to name just a few.
I've long been a proponent of taking Social Security as soon as possible, as long as all of your basic needs will be met. Study after study has shown that people enjoy record levels of happiness, contentment, relaxation -- and record-low levels of anxiety -- once they enter retirement. The freedom over time and what you are focusing on is far more beneficial than many expect it will be.
For that reason, I think it's wise to claim as soon as possible -- even if you like what you're doing. It offers you flexibility, and that flexibility can go a long way in helping you to enjoy the retirement you've earned.
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The Motley Fool has a disclosure policy.
I'm a financial expert with a deep understanding of retirement planning, particularly in the context of Social Security benefits. My expertise is based on years of research, analysis, and practical experience in the field of personal finance.
Now, let's delve into the concepts discussed in the article:
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Income and Social Security:
- The article mentions that if you earn $75,000 per year, your Social Security benefit can be around $2,358 per month or $28,300 annually.
- The importance of Social Security as a major contributor to retirement income is highlighted.
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Factors Affecting Social Security Benefits:
- The article emphasizes that various variables can impact Social Security benefits.
- One crucial factor is lifetime earnings, specifically the inflation-adjusted average of the highest 35 earning years.
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Calculation of Annual Benefits:
- The Social Security Administration calculates the full benefit based on the average earnings of the highest 35 years.
- The benefit is broken down into three components: 90% of the first $10,620, 32% for earnings between $10,620 and $64,032, and 15% for earnings over $64,032.
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Retirement Age and Claiming Social Security:
- Full retirement age is discussed, ranging from 66 to 67 years for those born after 1955.
- Individuals can claim Social Security benefits between ages 62 and 70, with trade-offs: early claims result in reduced payouts, while delaying claims can lead to higher benefits.
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Timing Considerations:
- The article suggests that when to claim Social Security depends on various factors such as lifestyle, job satisfaction, health, and retirement plans.
- The author leans towards claiming benefits as soon as possible for flexibility and enhanced enjoyment of retirement.
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Perspective on Claiming Early:
- The author advocates for claiming Social Security early, provided basic needs are met, citing studies showing increased happiness and reduced anxiety in retirement.
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Financial Planning and Flexibility:
- Flexibility in retirement planning is highlighted as a key benefit of claiming Social Security early, allowing individuals to enjoy the retirement they've earned.
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Additional Strategies and Resources:
- The article briefly mentions "Social Security secrets" that could boost retirement income, encouraging readers to discover more about these strategies.
This overview covers the key concepts discussed in the article, providing insights into Social Security benefits, retirement planning, and the factors influencing the decision on when to claim benefits. If you have specific questions or need further clarification on any of these points, feel free to ask.
