Social Security is one of the most popular government programs, with more than 65 million people (or one in six U.S. residents) collecting benefits as of January 2022. Given how far-reaching it is, it’s not surprising that many people wonder how much they’ll receive in retirement, when they’ll be eligible to accept it, and how it will affect the rest of their retirement income.
Determining how much Social Security you’ll be able to collect can be confusing. Knowing the basics of the program can help you determine what retirement benefits you’re entitled to and help you make strategic plans for the rest of your retirement income.
What is the average Social Security payment?
The average monthly Social Security payment in 2022 is $1,657 for retired workers, adjusted from $1,565 in 2021. Legislation enacted in 1973 allows the Social Security Administration (SSA) to create periodic cost-of-living adjustments (COLA) to keep up with inflation, and the most recent increase of 5.9% went into effect in December 2021.
Cost-of-living adjustments are not guaranteed every year, however. SSA uses a formula that tracks changes in the Consumer Price Index for Urban Wage Earners or Clerical Workers to calculate needed adjustments. When that price index has a significant increase, Social Security benefits also increase. In 2021, the CPI-W rose by 5.9%, which increased Social Security benefits by the same percentage.
When calculating your Social Security retirement benefit and saving for retirement, remember that Social Security won’t replace your entire working income and is not meant to be your only retirement income.
Social Security benefits replace about 37% of past earnings, according to the Center on Budget and Policy Priorities, leaving personal savings and pensions to fill in the rest. As pensions become less common, saving money in defined contribution plans such as 401(k)s or Roth IRAs becomes increasingly essential.
How is Social Security calculated?
Although each situation is unique, Social Security benefits are based on an average of the 35 years you earned the most. A formula is then applied to that average to determine your primary insurance amount (PIA). Your primary insurance amount is the amount you would receive at your full retirement age (67 if you were born in 1960 or later) and is adjusted up or down based on when you claim Social Security.
The years you work don’t have to be consecutive, but any years you stop working are given a zero in the Social Security formula and could reduce your benefit amount.
If you work more than 35 years, your highest earning years will replace your lowest ones. If you work beyond your full retirement age, those years can be part of your 35-year average, even if you were only working part-time.
Because every person has a different employment history, there isn’t a one-size-fits-all table that can help you determine what you’ll receive in benefits, but using the online Social Security calculators at SSA.gov can help you estimate your benefit.
Considerations if you have a pension
If you expect to receive a pension from a state or local government, confirm whether it is a covered or non-covered plan under Social Security’s guidelines. If you were a government employee and Social Security taxes (also called FICA) were withheld from your paycheck, you could be eligible to receive Social Security benefits without penalty.
If Social Security taxes were not withheld from your paycheck, as may be the case for some teachers, city workers, or police officers, you could be part of a non-covered pension plan and subject to the Windfall Elimination Provision (WEP). This provision affects about 1.9 million people or 4% of retired workers receiving Social Security, and in some cases could reduce Social Security benefits by up to half the amount you receive from your pension.
As you think about investing money for retirement, remember that when you retire matters. The longer you work, the longer your retirement savings will last, and in general, the more Social Security benefits you’ll receive.
The SSA calculates your benefits based on how close you are to full retirement age (FRA) when you apply. If you were born in 1955, your FRA is 66 and 2 months, and then the FRA increases by two-month increments until age 67 for people born in 1960 or later.
Although Social Security eligibility typically starts at age 62, your benefit amount will be reduced by five-ninths of 1% for every month you claim benefits before your FRA. If you start collecting right at age 62, your benefits may be reduced up to 30% compared with what you would have received at your FRA.
Retiring at age 70
In contrast, if you apply for benefits after your FRA but up to age 70, you may actually see an increase in your monthly Social Security check.
When you wait to claim Social Security, you accumulate delayed retirement credits of two-thirds of 1% for each month past your full retirement age, up to 8% each year. If your FRA is 67 and you delay taking benefits until age 70, you may increase your benefits by 24%.
There is no additional benefit increase if you delay Social Security after age 70. If you’re considering delaying, consider working with a retirement professional to help you develop the right strategy for your situation.
Spouses without a significant work history, such as stay-at-home caregivers, may be eligible for Social Security benefits based on the employed partner’s earning history. If claimed at or after your full retirement age, a spousal benefit could be as much as 50% of the working spouses’ benefit.
If you’re claiming a spousal benefit, you must have been married for at least one continuous year and be at least 62 years old. If you claim the benefit before your full retirement age, your benefits may only be 32.5% of the worker’s full benefit amount, depending on how far you are from FRA when applying.
If you are younger than 62 and caring for a child under 16 or who is disabled, you may qualify for family benefits on your spouse’s record.
If you’re considering a spousal benefit, remember that if you worked and contributed to FICA (the payroll tax that helps fund Social Security), you may be eligible to claim your own Social Security benefits. Both partners can receive retiree benefits based on their individual Social Security earnings records. Social Security will pay whichever amount (the spousal or direct retiree benefit) is higher, but you cannot collect both.
Payments after divorce
Even divorced people may be eligible to receive benefits based on their former spouse’s work history, so long as you were married for at least 10 consecutive years. Your former spouse’s benefit amount must be higher than your benefit, and you’ll need to be at least 62 years old and unmarried. You may still be able to receive benefits even if your former spouse hasn’t applied for their benefit yet, but check with your local Social Security office to confirm.
You do not need to contact your ex-spouse to claim divorced spouse benefits, and receiving them does not reduce or affect what your former spouse and their current partner receive from Social Security.
Keep Medicare costs in mind
Although Social Security and Medicare are separate programs and funded differently, the Social Security Administration handles enrollment for Medicare Parts A (hospital insurance) and B (medical insurance).
Part B premiums tend to increase annually based on rising medical and drug costs. In 2022, Medicare Part B premiums are $170.10 a month, and the annual deductible is $233. An individual’s premium is calculated using tax returns from two years ago and adjusted based on annual gross income (AGI). In 2022, if you made $91,000 AGI or less, your premium is $170.10. If you earned above $91,000 AGI, your premium would be higher.
Most people become eligible for Medicare at age 65. If you haven’t applied for Social Security by then, you’ll have to enroll in Medicare and receive the bill for Part B premiums directly from the Centers for Medicare and Medicaid Services (CMS). If you are already receiving Social Security, Medicare Part B premiums will be deducted from your monthly Social Security payment after you enroll in Medicare.
Medicare beneficiaries usually don’t pay premiums for Part A because it’s likely they have paid Medicare taxes long enough to qualify for the program fully. In addition to the Part B premium, you could also elect to have the premiums for Part D (prescription drug coverage), and/or Part C (Medicare Advantage plans) deducted from your monthly Social Security payment. Part C and D premiums vary based on the plan coverage you select, so pay attention to costs and coverage before you sign up.
How much Social Security will you get?
Each person’s situation is different, and there isn’t a one-size-fits-all way to determine your monthly Social Security benefit. One of the easiest ways to receive information specific to you is to check your annual statement from Social Security, which shows how much you’ve currently paid into Social Security and your benefit estimates at various ages.
That statement is available online if you set up a My Social Security account or mailed approximately three months before your birthday if you prefer. There are also various ways to contact Social Security with questions or more information.
- Online: SSA.gov to search for information, apply for benefits, or use its online calculators’
- Phone: 1-800-772-1213 (TTY:1-800-325-0778) between 8 a.m. and 7 p.m. Monday through Friday, with recorded information available 24 hours per day, seven days per week.
- In-person: Use its office locator to find the closest office. Note that due to the ongoing COVID-19 pandemic, most Social Security offices are closed to the public for in-person services. Contact your local office for its specific requirements and availability.
Additionally, consider using an online benefits calculator such as this one from AARP to help you get an idea of your estimated monthly benefits and to run different retirement scenarios.
What are the benefits of Social Security?
In addition to providing steady retirement income for millions of Americans, Social Security also facilitates the Social Security Disability Insurance (SSDI) program, which provides workers with life insurance and disability benefits based on payroll taxes. One-fifth of Social Security beneficiaries receive Social Security Disability Insurance payments or are the young survivors of deceased workers.
The Social Security program helps keep 1.1 million children above the poverty line in the U.S., according to a 2021 Supplemental Poverty Measure index. In 2019, more than 6.5 million children under age 18 lived in a family that received income from Social Security, either as retirees or as dependents of disabled or deceased workers.
Also run by the SSA, the Supplemental Security Income (SSI) program provides monthly payments to adults and children with a disability or blindness and who have limited incomes and resources.
What is the maximum Social Security you can get?
The maximum monthly benefit for a person at full retirement age (67 for people born in 1960) in 2022 is $3,345. If you wait to file for benefits until you’re 70, the maximum benefit is $4,194, but if you were to file early at age 62, your maximum benefit would only be $2,364.
You are eligible for the maximum benefit if your earnings exceed Social Security’s maximum taxable income ($147,000 in 2022) for at least 35 years of your working life.
How does Social Security income tax work?
Most people have to pay taxes on Social Security benefits based on their combined income, but benefits are never fully taxed. You can elect to have taxes withheld from your Social Security payment, just as you would for a paycheck or pension.
You likely won't pay federal taxes on your Social Security benefit if you have a combined income of less than $25,000 a year, but individuals earning between $25,000 and $34,000 annually could have up to 50% of their benefits taxed. An individual making above $34,000 a year could be taxed on up to 85% of the Social Security benefit.
If you file a joint return, and your combined income for you and your spouse is between $32,000 and $44,000, up to 50% of your benefit could be taxable. If your combined income is above $44,000, up to 85% of your benefit could be taxable.
Although Social Security can be hard to navigate, it helps more than 16 million older adults stay above the poverty line.
Social Security is a program designed to be a foundation of income in retirement. Although it’s not meant to replace your salary completely, it should be part of your retirement plans, along with personal savings and any applicable pension plans.
Although estimating how much you’ll get from Social Security may not be straightforward, it’s an integral part of your retirement preparation. Make sure you do your research and consult a financial planner or retirement expert to help you make sure you’re claiming Social Security at the best time for your situation.
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