Whether you realize it or not, the income provided by Social Security is leaned upon heavily by our nation's retired workforce. Data from the Social Security Administration (SSA) has shown that 61% of retired workers rely on their monthly check for at least half of their monthly income -- and without this income, the poverty rate for seniors would be considerably higher than it is now.
Social Security covers a lot more people than you probably realize
However, Social Security is about more than just making payments to retired workers, even if 68% of the program's more than 61 million monthly beneficiaries are retired workers. Social Security also provides protections for the families of retired workers, the disabled, and qualified survivors of eligible beneficiaries who've passed away.
For example, 10.52 million beneficiaries receiving a Social Security check each month as of June 2017 were disabled and another 1.63 million were children of those qualifying disabled people. Another 6.01 million folks were surviving spouses, children, or widowed mothers and fathers, who were able to collect a monthly benefit based on the work history of their deceased family member. Even the spouses and children of retired workers can qualify for benefits under certain conditions.
What's the average monthly benefit for Social Security recipients?
The big question we should be asking is just how much can the average retired worker, survivor, or disabled person expect to be paid from Social Security. Let's take a closer look by utilizing the June 2017 snapshot from the SSA.
The average retired worker takes home $1,368.67 a month
Of the nearly 42 million retired workers collecting a monthly check under Social Security, the average payout is currently $1,368.67, or about $16,424 a year. That may not sound like much, but as noted above, it makes up at least half of the annual income for three in five seniors.
Working Americans do have some capacity to alter what they're paid monthly by the SSA given that they control three payment variables. The first two – your earnings and work history – are interconnected. The SSA averages out your 35 highest-earning years to generate an average monthly income when determining your full retirement age benefit (the age at which you receive 100% of your monthly benefit). Thus, working at least 35 years, and earning as much as you can in those years you work, can be very helpful in boosting your payout.
When you claim Social Security benefits also matters a lot. Payouts can begin at age 62 or any point thereafter. However, there's a pretty large dangling carrot for those who wait. Each year that you hold off on enrolling for benefits means an 8% increase in your eventual payout, up until age 70. All things being equal, a person claiming at age 70 could receive a 76% higher monthly payout than someone at age 62. Therefore, waiting until your full retirement age or after could really boost this average monthly payout.
The average survivor receives $1,126.04 a month
According to the June data, the average survivor had a take-home check from the SSA of $1,126.04, or about $13,512 a year. Even though survivor benefits are based on the work history of a loved one, this average annual payout would keep a widow or widower above the poverty level.
We often think of our Social Security claiming decision as something entirely personal, but it can have serious earning consequences on those we love. In this instance, if you're a higher-earning spouse and claim benefits early, if you pass away before your lower-earning spouse, your lower-earning spouse could be stuck with a lower survivor benefit as a result of your early claim.
Survivor benefits can be particularly useful for women. Statistics show that women, on average, receive a lower monthly payout than men from the SSA. The reasons being that women are more likely than men to drop out of the workforce to raise their children, and they're also more likely to step away from a career to take care of sick friends or family members. This reduces their lifetime earning potential and therefore their Social Security benefit. However, if their higher-earnings spouse passes away before they do (which isn't uncommon given that women live longer than men, on average), they'll have the opportunity to trade their benefits derived from their work history for their survivor benefit based on their deceased spouse's work history.
Consider the survivor benefit as an added foundation that ensures your loved ones are financially supported after you're gone.
The average disabled person takes home $1,034.93 a month
Last, but certainly not least, the SSA's data shows that the average payout for a disabled person is $1,034.93 a month, or about $12,419 a year. This is also above the federal poverty level, but not by much.
Why do the disabled receive a notably smaller amount each month than retired workers and survivors? The answer lies with demographics. The disabled are younger than retirees, and therefore may not have as much earnings history built into their payout calculations.
Generally, you have to earn 40 lifetime work credits in order to quality for Social Security benefits. A maximum of four credits can be earned annually, with each credit equaling $1,300, as of 2017. In effect, 10 years of part-time work can qualify you for benefits. The SSA understands that disabled folks may not be able to work for 10, 20, or 30 years, and thusly have a system built in to allow younger workers to qualify based on a shorter work history. Unfortunately, this shorter work time frame often means a smaller monthly paycheck, as is reflected in the data we see above.
As you pore over this data for retired workers, survivors, and the disabled, keep in mind that Social Security was never designed to replace more than 40% of the average retiree's income, so ensure that you have alternative pathways to income in place before hanging up those work gloves for good.