It's tough to know how much you must save for retirement when you don't know how much you'll get from Social Security. You might try planning for a retirement without these benefits if you have an easy time saving, but for most people, this isn't realistic.
Figuring out exactly how large your monthly Social Security checks will be may not seem realistic either for those who don't understand how the government calculates your benefit. Fortunately, it's a lot easier than you might think, and there's no math required.
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The answer is just a few clicks away
It'd be pretty time-consuming for the average person to estimate their Social Security benefit manually using the government's formulas, but fortunately, that's not necessary. You can quickly find out how large your checks will be by creating a my Social Security account.
This is a free service. You'll need some basic personal information like your birth date and Social Security number. You'll also have to answer some identity verification questions, and you may need to enter a confirmation code sent to you via email or text.
Once that's done, you're brought to your account page, where you can see whether you're eligible for Social Security based on your work history to date. You can also order replacement Social Security cards if need be and review your earnings history. This shows how much money you've paid in Social Security taxes each year.
But the most valuable tool in your my Social Security account is the benefit estimator tool. It enables you to see how much you'll earn from the program if you sign up during any given month between your 62nd and 70th birthdays. The longer you delay benefits, the larger your checks become, until you reach your maximum benefit at 70.
The calculator also enables you to see how your monthly benefit might change based on changes to your future salary. If you anticipate a pay increase, for example, you can factor this in to see how much your checks will grow.
If you're married, you can also figure out what kind of a spousal benefit you might get if your partner qualifies for Social Security. But you need to know what their estimated monthly benefit at their full retirement age (FRA) is. FRA is anywhere from 66 to 67 for today's workers, depending on birth year. You can figure this out by having your partner create a my Social Security account of their own.
But it can't tell you the best time to claim
The benefits calculator is a useful tool for estimating your monthly benefit, but it can't tell you when to sign up to claim your largest lifetime benefit. You must decide that for yourself, and it often comes down to life expectancy. Claiming earlier means more years of checks, but each check is smaller, while delaying leads to larger checks but fewer of them.
If your goal is to claim the largest lifetime benefit, you can figure out which starting age is best with some basic math. First, take your estimated monthly benefit and multiply it by 12 to get your estimated annual benefit. Then, multiply that by the number of years you expect to claim checks. For example, a $2,000 monthly benefit would give you $24,000 per year. And if you claimed for 20 years, you'd get $480,000 overall.
Repeat this process for a few claiming ages to see which provides you with the largest benefit overall based on your estimated life expectancy. Then, try to put off claiming until that age. If that's tough for you financially, you may have to sign up earlier than you'd like.
Another thing worth noting is that all the data the benefit calculator provides is based on the way the government calculates Social Security benefits right now. It's possible the government alters the program in some way in the coming years to keep it sustainable for generations to come. If this happens, you may need to repeat the process above based on the new benefit estimates.
Once you know about how much you can expect from Social Security in retirement, you can begin to calculate how much you need to save on your own. Don't forget to review this information annually to ensure you're on track, and be ready to adjust your Social Security claiming strategy as necessary if your retirement plans change.
