Social Security plays an integral role in the retirement plans of millions of Americans. For most individuals, a significant portion of their working life is spent contributing to Social Security with the understanding that it will provide a source of income upon retirement.
While there are some exceptions based on specific types of employment, the vast majority of workers expect to benefit from this system after years of paying into it.
Given the importance of Social Security to retirement security, future retirees need to understand what they can expect to receive. The amount an individual will get depends largely on when they choose to begin claiming benefits.
While it is difficult to predict an exact monthly benefit amount if you’re still years away from retirement—due to variables such as annual cost-of-living adjustments (COLA) and fluctuations in personal earnings—you can make initial financial plans using average monthly benefits as a reference point.
How to know how much you will get in Social Security benefits
To calculate how much you will receive, Social Security uses a specific formula. It begins with determining your average earnings over your 35 highest-paid years. This is known as your average indexed monthly earnings (AIME). Social Security adjusts these earnings for inflation, a process known as “indexing,” to bring past earnings in line with today’s dollar value.
Your total earnings for those 35 years are then divided by the number of months in those years to get the AIME. If you do not have 35 years of earnings, zeros will be included for the years in which you did not work, which could lower your average.
After calculating your AIME, Social Security uses a formula that includes specific “bend points,” which change annually, to determine your primary insurance amount (PIA). The PIA is the monthly benefit you would receive if you claim benefits at your full retirement age.
The full retirement age varies depending on your birth year, but it is important to note that ages 62, 67, and 70 represent key benchmarks in the Social Security timeline.
Age 62 is the earliest age at which you can claim benefits, but doing so will reduce your monthly benefit. In contrast, waiting until your full retirement age, typically around 67, allows you to claim the full PIA.
For those who can delay claiming until age 70, there is an additional benefit: your monthly payout will increase. Specifically, claiming at 62 results in a reduction of about 30% of your PIA, while delaying until 70 increases your benefits by approximately 24%, assuming your full retirement age is 67.
The financial impact of claiming at these key ages is significant, so it’s useful to have a general sense of the average monthly benefit at these different points.
If you retire at full retirement age in 2024, your maximum benefit would be $3,822. However, if you retire at age 62 in 2024, your maximum benefit would be $2,710. If you retire at age 70 in 2024, your maximum benefit would be $4,873.
These benefit amounts, of course, are subject to change over time due to cost-of-living adjustments and other factors, but they offer a reasonable estimate of what retirees might receive. While understanding the mechanics of when and how much you will receive from Social Security is critical, an equally important question arises: can you live comfortably on Social Security alone?
The answer depends on a variety of factors, including your lifestyle, expenses, and retirement plans. For example, someone living in a high-cost area like Southern California who plans to travel extensively may require significantly more income in retirement than someone with simpler aspirations, such as spending time in a more affordable area like the Outer Banks in North Carolina.
Regardless of personal circumstances, it is common for retirees to find that Social Security alone is insufficient to cover all retirement costs.
