Are you financially prepared for retirement? Probably not. According to a survey conducted by Nationwide, Americans are overestimating how much money they'll receive from Social Security and underestimating retirement expenses.

Are you making the same mistake? Read on to get a better grasp on what you're Social Security income could be at 62, 66, and 70, the three most common ages to claim benefits.

Miscalculations are common

Nationwide's survey finds that people over age 50 think Social Security will cover more than 50% of their expenses in retirement. However, the reality is that Social Security is designed to replace only 40% of the average worker's pre-retirement income. If your pre-retirement income is higher than average, it will replace an even smaller percentage because of something called "bend points."

A retiree looking through a large magnifying glass.


When Social Security calculates your benefit amount, it doesn't simply multiply your pre-retirement income by 40% to determine how much to pay you. Instead, it adjusts your 35 highest earnings years into current dollars to determine your average monthly pay. Then it calculates your primary insurance amount, or your retirement benefit at full retirement age, by applying multipliers at specific income thresholds.

For instance, in 2018, retiring workers get credit for 90% of income up to $895 per month, 32% of income between $895 to $5,397, and 15% of income over $5,397.

The complexity of this calculation can cause people to mistakenly believe they'll get more in benefits than they do. According to Nationwide, "about a quarter of current retirees say their Social Security payments are either less or much less than expected (25 percent of recent retirees and 23 percent of those retired for 10-plus years)."

How much do retirees get in Social Security now?

If you qualify for Social Security, you can begin receiving benefits as soon as age 62. However, you'll only get 100% of your benefit amount if you retire at full retirement age, which varies depending on your birth year. If you wait beyond your full retirement age to claim benefits, you'll receive delayed retirement credits, which increase your benefit for every month you delay, up until age 70.

For example, the following chart shows how much money a person with a full retirement age of 66 would collect in Social Security if their full retirement age benefit is $1,000 and they claim between ages 62 and 70.

A chart showing the impact on $1,000 from claiming Social Security at different ages.

Calculations by author.

The specific amount of your benefit will vary depending on your personal work history, your full retirement age, and your age in the month you claim. Average Social Security figures provide a benchmark that can help inform your retirement planning.

For instance, it may be helpful to know that, as of December 2017, Social Security recipients who are age 62, 66, and 70 are receiving an average of $1,112, $1,383, and $1,510, respectively, per month. In all three cases, those figures are lower than the average $1,578 per month that respondents told Nationwide they expect to receive when they retire.

The disparity between how much current workers expect to receive and what recipients are actually receiving is especially worrisome, because it may mean that many people are overestimating their retirement income and, as a result, saving too little in their retirement accounts.

A person walking over signs on the ground that read failure toward a sign that reads finish.


What else should I know

Waiting until age 70 to claim Social Security will result in the biggest Social Security check, but a retirement plan that depends on delaying benefits might not be smart. In Nationwide's survey, future retirees said that, on average, they plan on retiring at age 65, yet the reality is that most people actually retire at age 62. Deteriorating health and job loss are the most common reasons why people retire sooner than they think they will, and based on this survey, it appears current workers aren't giving those risks enough weight when it comes to planning when to retire.

Rather than risk financial insecurity if you're forced to retire early, it may be best to use your age 62 benefit when you're doing your retirement planning. Using the smallest benefit amount you can receive in retirement when considering your retirement budget could force you to increase how much you're socking away, giving you the best shot at financial flexiblity in your golden years.