This article was updated on Jan. 16, 2017, and originally published Jan. 31, 2016.
If you're coming up on retirement, one of your big questions is how much money you'll get from Social Security.
The Social Security Administration knows that's at the top of many minds, and as a result, it reports that the average monthly Social Security payment to retired workers will be $1,360 in 2017.
Image source: Getty Images.
However, averages are deceiving, because they can be skewed by people who get a lot or a little in Social Security income. For that reason, it may be more useful to learn how Social Security calculates a retiree's benefit payments and what current Social Security recipients are typically collecting in Social Security income.
Calculating Social Security benefits
Social Security benefits are determined using a specific calculation that adjusts your income history -- up to specific annual limits -- into current dollars. This amount is known as indexed earnings.
After Social Security calculates an individual's annual indexed earnings, the highest 35 years of them are added up and that number is divided by 420, which is the number of months in 35 years. The resulting amount is known as a person's average monthly indexed earnings.
Once Social Security has an individual's average monthly indexed earnings in hand, it then breaks that figure down into pieces and uses a multiplier to estimate an individual's monthly benefit.
For example, a person who was born in or after 1954 would multiply the first $885 in indexed monthly earnings by 90%, any amount between $885 and $5,336 by 32%, and any amount above $5,336 by 15%. Once those calculations are done, the resulting numbers are added together and rounded down to the nearest dollar. That sum is a person's estimated monthly retirement benefit at full retirement age.
Taking the guesswork out of it
That's a pretty complex formula, but the Social Security Administration doesn't make those of us who are numerically challenged calculate the numbers ourselves.
Instead, Social Security provides a handy calculator on its website that individuals can use to get a rough estimate of their benefits. They also provide login access on their website so that people can see their specific retirement information, too.
Digging into data
Although the average Social Security check amounts to an annual Social Security income of about $16,000, the complexity of the calculation suggests it's unlikely to be paid that exact figure. In reality, the amount people receive in Social Security income varies widely.
For example, the following chart shows the breakdown of how many retired workers receive a specific range of Social Security income as of December 2015. Most people collect between $700 and $1,800 per month in Social Security payments.
Source: Social Security Administration.
Getting a bigger check
There a couple of options available to you that can lead to a bigger Social Security check when you retire.
First, high-income earners who are approaching retirement might want to keep working a few more years, because current high-income-earning years will displace low-income-earning years when Social Security picks the top 35 earning years to run its retirement benefit calculation.
Secondly, you can delay taking Social Security beyond your full retirement age and benefit from a larger payout until age 70. For example, people born in 1960 or later have a full retirement age of 67, and if they delay taking their Social Security until age 70, then their monthly Social Security check will equal 124% of the amount they would have received at age 67.
