Each month, more than 62 million people, including nearly 43.4 million retired workers, receive a Social Security benefit check. Of these retirees, 62% are reliant on the program to provide at least half of their monthly income. If you weren't aware of just how important Social Security is to seniors, this fact from the Social Security Administration (SSA) certainly sums it up nicely.
But what you may not realize is that the average Social Security benefit can vary pretty dramatically depending on the state you live in.
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The average Social Security payout, ranked by state
According to data released by the SSA in April 2018, retired workers in the state with the lowest average retired worker benefit (determined by dividing the number of retired workers in a given state by the aggregate retirement benefits paid to that state by the SSA) bring home $241.91 a month less, on average, than retirees in the state with the highest average payout. That's about a $2,903 difference a year, and it's nothing to sneeze at given the program's noted importance.
With this in mind, let's take a look, from worst to first, at the average monthly Social Security retirement benefit by state. Afterward, I'll tackle some of the reasons why there's such a variance in these figures, and why they can sometimes be difficult to predict.
50. Louisiana: $1,311.72
49. Maine: $1,314.22
48. Mississippi: $1,319.06
47. New Mexico: $1,323.16
46. Montana: $1,331.30
45. Arkansas: $1,333.93
44. South Dakota: $1,336.28
43. Kentucky: $1,340.30
42. Alaska: $1,343.39
41. North Dakota: $1,344.48
40. Oklahoma: $1,368.52
39. Idaho: $1,370.97
38. Texas: $1,375.08
37. California: $1,377.54
36. Nevada: $1,378.14
35. Alabama: $1,379.92
34. Georgia: $1,382.27
33. Missouri: $1,384.10
32. West Virginia: $1,384.50
31. Ohio: $1,385.60
30. Hawaii: $1,391.79
29. Tennessee: $1,393.61
28. Florida: $1,395.31
27. North Carolina: $1,404.91
26. Oregon: $1,406.20
25. Nebraska: $1,406.96
24. Colorado: $1,407.59
23. Iowa: $1,408.79
22. South Carolina: $1,416.91
21. Vermont: $1,419.44
20. Wyoming: $1,426.58
19. Rhode Island: $1,430.63
18. Arizona: $1,432.72
17. Illinois: $1,434.34
16. Utah: $1,437.30
15. Wisconsin: $1,443.26
14. Virginia: $1,444.06
13. Massachusetts: $1,444.36
12. Kansas: $1,450.99
11. Pennsylvania: $1,454.99
10. Minnesota: $1,457.22
9. New York: $1,458.19
8. Indiana: $1,464.61
7. Washington: $1,472.50
6. Maryland: $1,482.87
5. Michigan: $1,493.77
4. New Hampshire: $1,498.01
3. Delaware: $1,517.11
2. Connecticut: $1,546.67
1. New Jersey: $1,553.63
Image source: Getty Images.
The big reason why these figures vary so much
Though there is no perfect answer as to why these average benefit figures vary from state to state as much as they do, the single-biggest factor is probably lifetime earnings. In other words, states that have higher household or per-capita incomes for workers would be expected to yield a bigger average monthly payout during retirement. That's because the SSA takes your 35 highest-earning, inflation-adjusted years into account when calculating your full retirement benefit. Therefore, the more income you can earn, up to the payroll tax cap, the higher your payout should be.
For example, based on 2015 Census data, New Jersey had the fourth-highest median household income in the country, excluding the District of Columbia. Maryland, Connecticut, New Hampshire, and Washington, which are among the top 10 states above based on average Social Security benefit, are also among the top 10 based on median household income, as of 2015. Simply, higher annual incomes lead to a beefier Social Security payout during retirement.
But earnings alone don't explain everything on this list. As an example, Alaska has the third-highest median household income, yet ranks just 42nd in average monthly retirement benefit. Chances are some harder-to-quantify factors are playing a role in this bifurcation.
Image source: Getty Images.
These hard-to-value factors are playing a role, too
In the anomaly above with Alaska, one possible reason for the discrepancy might be the desire of residents to move to another state. To be blunt, Alaska has harsh winters relative to most other states. Once Alaskan residents have saved up for retirement, they could be choosing to move out of state to a warmer climate. If beneficiaries are indeed choosing to move from one state to another, it could adversely impact or even benefit certain states, at least with respect to average Social Security benefit.
Along those same lines, retirees may be choosing to move based on cost of living. For instance, it's probably a bit surprising to see Michigan and Indiana with the respective fifth- and eighth-highest average benefit per month. After all, Michigan and Indiana ranked 33rd and 35th, respectively, in median household income in 2015. What they do have going for them is a relatively low cost of living, compared with the national average.
Using a cost-of-living calculation from the Bureau of Economic Analysis, where the national average reading is 100, Michigan and Indiana come in with respective cost-of-living readings of 93.5 and 90.7. This means that it's 6.5% and 9.2% less expensive to live in these states compared with the national average. If you're among the 62% of Social Security beneficiaries leaning on your check as your primary income source, then states like Michigan or Indiana can help make your income stretch further.
Lastly, the average benefit really depends on claiming age. That's because Social Security incentivizes patience, with a worker's payout growing by 8% for each year they hold off on their claim, beginning at age 62 and ending at age 70. If we examined two identical individuals with the same earnings history, work history, and birth year, the individual claiming at age 70 could net as much as 76% more per month than the person claiming as early as possible at age 62. A broad spectrum of factors that include state and local taxation, cost of living, financial and marital status, and health could influence a worker's claiming decision and vary by state.
Ultimately, you should understand that while there's quite the variance in average retirement benefits by state, it's your earnings history, work history, birth year, and claiming age that really matter.
