In 2022, retirees will receive an average Social Security benefit of $1,657. The $19,884 in yearly income this produces isn't exactly a generous amount of money to live on.
Some people, however, end up with benefits that are well above this amount. Here's how you can tell if you're on track to be one of the retirees whose benefit exceeds the typical amount paid to your peers.
Will your Social Security benefit be higher than average?
If you want to score a benefit that's above average, there are a few key things you'd need to do:
- Earn more than most of your peers for a long period of time. Average wages over your 35 highest earning years determine the amount of your benefit. This means beating the average wage in just one or two years isn't going to cut it if you want a Social Security check far above what the typical retiree receives. You must consistently earn a salary higher than your peers. Since the Bureau of Labor Statistics reported median weekly earnings for full-time workers at $1,010 in the fourth quarter of 2021, you'd need to spend many years working with a salary above this level, or the inflation-adjusted equivalent of it.
- Work for a long time. Many people have some bad years where they don't earn much -- perhaps because they're unemployed for part of the year or are just starting a new career. If you work for 35 years or less, every single year in your career history will be part of the average wages used to set your benefits -- and perhaps even some years when you earned $0 will be included. This makes it even harder to beat the $1,657 average benefit.
- Put off your benefits claim. Even if you work for a long time and earn a good living, you could end up with a benefit that doesn't beat the average. This could happen if you shrink your checks by starting them early. If you want your standard benefit (based on average wages), you must claim it at full retirement age (FRA). That's between 66 and four months and 67 -- which is a long time after you first become eligible for Social Security at 62. And if you want to raise your standard benefit to help earn higher benefit checks than your peers, you must wait beyond FRA to max out delayed retirement credits that can be earned until 70.
In other words, beating the average Social Security benefit is a lifelong effort that will only pay off if you're able to earn a lot of money for a long time and avoid inadvertently reducing your checks by claiming early.
You still can't live solely on above-average benefits
Even if you beat the average Social Security benefit, it's important to remember that you aren't going to be able to live on Social Security income alone.
Beating the average requires you to have a higher income for many years, so you'll be used to a higher standard of living and likely won't want to take a huge pay cut after leaving the workforce. And unfortunately, that's exactly what would happen if you didn't have supplementary savings, because Social Security benefits are intended to replace about 40% of preretirement earnings.
To make sure you have plenty of other money, it's best to invest consistently and build a diversified portfolio. Investing in index funds is one of the easiest ways to do that. An index fund that tracks a financial index, such as the S&P 500, will provide easy diversification with low fees since your investment doesn't need to be actively managed, as it's just mimicking the composition of the index.
While you won't beat the stock market by opting for an index fund that tracks the performance of either the S&P 500 or the market as a whole, investing in one makes it simple to save enough without spending a lot of time picking individual stocks to buy.
If you invest consistently in an S&P 500 index fund over the course of your career, your savings should provide plenty of money to supplement Social Security -- whether your benefits exceed the average, fall below it, or come in right around the $1,657 monthly average.