Whether you realize it or not, there's a strong chance you'll lean on Social Security to some degree during retirement to make ends meet.
Recently, national pollster Gallup released its annual survey that examined nonretirees' and retirees' reliance on America's top social program. In 2022, a combined 85% of nonretirees were of the belief that they'll lean on Social Security as either a major or minor source of income during retirement. Meanwhile, 89% of the current retirees surveyed rely on the income they receive from Social Security in some capacity each month.
In other words, what you'll be paid on a monthly basis during your golden years matters. But where you live can matter, too.
Before diving into the nitty gritty of which states boast the highest Social Security payouts each month, it's important to have a good understanding of how your monthly benefit is calculated.
A walkthrough of how your Social Security benefit is calculated
Although there are over a half-dozen factors that can affect what you'll take home and/or keep from Social Security as a retired worker, there are four essential components that determine how much you'll be paid each month.
The first two, your work history and earnings history, are tied at the hip. The Social Security Administration factors in your 35 highest-earning, inflation-adjusted years when calculating your monthly benefit at full retirement age. This means it's not only important for you to earn as much as you can in the years you do work (up to the maximum taxable earnings cap, which is $147,000 in 2022), but you'll also want to generate earned income for at least 35 years to maximize your retirement benefit.
The third component is your full retirement age. This is the age where a beneficiary becomes eligible to collect 100% of their monthly retirement benefit. For persons born in 1960 and after, full retirement age is 67.
The fourth key factor that determines your monthly benefit is your claiming age. Eligible beneficiaries have the opportunity to begin taking their payout before or after their full retirement age, which can reduce (when taken before) or increase (when taken after) their monthly benefit. Depending on your birth year, this reduction can be as high as 30% per month, and the increase can be as much as 32%.
These 10 states have the highest monthly Social Security payouts
Now that you have a solid understanding of the factors that determine your monthly Social Security benefit, we can dig into why certain states have higher average monthly payouts.
To determine which states boast the highest average monthly retired worker benefit, I turned to Social Security's Supplemental Data release for 2021. The geographic data section (tables 5.J1 and 5.J2, link will open a new window) provides tables that list how much was paid by the program to retired workers in each state in 2020, as well as how many retired workers there were in those states, as of December 2020. Dividing the former into the latter yields an average annual payout per retired worker for each state. This annual figure is then divided by 12 to achieve an average monthly benefit.
But the work isn't quite done yet. I've also added a 1.3% cost-of-living adjustment (COLA) to this average monthly benefit for 2021, as well as a 5.9% COLA for 2022.
The end result is that retired workers in the following 10 states are collecting the highest average monthly Social Security payouts in the country.
- New Jersey: $1,768.61/month
- Connecticut: $1,757.00
- Delaware: $1,704.26
- New Hampshire: $1,700.75
- Maryland: $1,689.86
- Michigan: $1,682.68
- Washington: $1,672.05
- Minnesota: $1,656.27
- Massachusetts: $1,654.24
- New York: $1,654.14
Why these states?
Now for the $64,000 question: Why these 10 states?
The most logical explanation has to do with income. Beneficiaries should receive a bigger payout in retirement if they consistently earn more than the national average. This means states with high-paying jobs, thriving industries, and above-average median household incomes should help workers receive a larger retirement benefit.
Based on income data from 2019 via the U.S. Census Bureau, Maryland, Massachusetts, New Jersey, Connecticut, Washington, and New Hampshire were six of the top eight states in terms of median household income. To be clear, moving to a state with a higher median household income doesn't mean your Social Security benefit is going to increase. But the data is pretty clear that a majority of these 10 states offer higher income opportunities for workers, which can help boost Social Security benefits paid during retirement.
There are other factors at work, too. Unfortunately, this is where we move beyond concrete data and push into a bit of guesswork and hypothesis.
For instance, Michigan is a bit of an anomaly on the income front. Based on median household income, the Wolverine State ranks 33rd and is notably below the national average. However, Michigan also offers the seventh-lowest cost of living in the U.S. It's plausible that high-income earners are moving to Michigan for retirement to allow their dollars to stretch further. This would certainly explain why Michigan has the sixth-highest average monthly payout in the country among retired workers.
Another possible reason these 10 states stand head-and-shoulders above the others is the claiming age of their retired workers. If wages and salary are consistently higher in most of these states, workers may have a better chance to save and invest for their future. This might mean less of a need to take Social Security income early in retirement (i.e., being forced to take a permanent benefit reduction). Being able to wait until full retirement age, or perhaps all the way until age 70, could be lifting the average monthly payout in these states.