Over one-quarter of Social Security recipients thought they'd receive more in benefits in retirement than they do, and on average, future retirees estimate that what they'll collect in retirement is about 30% higher than what they'll actually pocket, according to Nationwide. Here's how much Social Security is paying the average American in 2019 and how to give your benefit a boost if it's lower.
How Social Security works
I'll get to the average Social Security payment in 2019 in a minute, but first here's a quick review of how Social Security calculates and pays out benefits to retired workers.
IMAGE SOURCE: GETTY IMAGES.
First, a retiree needs to accumulate 40 credits to qualify for Social Security. One Social Security credit is awarded for earnings up to a set figure every year, and individuals can collect up to four credits annually. For instance, workers will receive one credit for every $1,360 in earnings subject to Social Security income taxes in 2019, so as long as they earn $5,440, they'll collect all four credits. Because most workers earn more than the set amount every year, it takes the typical person 10 years to accumulate the 40 credits necessary.
If a retiree qualifies for benefits, Social Security calculates how much each retiree receives in benefits by adjusting their highest 35 years of income for inflation to determine their average indexed monthly earnings (AIME). Then, it lowers that amount at specific income intervals called "bend points." Workers get credit for 90% of their AIME up to the first bend point, 32% of their AIME between the first and second bend point, and 15% above their second bend point. The result is the primary insurance amount retirees can receive at their full retirement age, or the age at which they can collect 100% of their benefit amount.
On average, Social Security replaces about 40% of an individual's pre-retirement income, but because retirees get less credit for income above the second bend point, high-income earners may have less of their income replaced by Social Security than low-income earners.
Average Social Security payment in 2019
Every year, Social Security determines whether or not to give Social Security recipients a cost-of-living adjustment (COLA) based on changes in third-quarter inflation as measured by the Bureau of Labor Statistics' Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Specifically, it compares the average third-quarter CPI-W in the current year to the average third-quarter CPI-W in the last year a COLA was awarded.
Last year, Social Security recipients received a 2% COLA increase, so this year's CPI-W was compared to last year's third-quarter average. Because CPI-W increased 2.8% between those two periods, Social Security recipients will receive a COLA increase next year of 2.8%. That increase boosts the average monthly Social Security payment to retired workers to $1,461 in 2019 from $1,422 in 2018.
Similarly, the average couple collecting Social Security will see their income increase, too. Following the COLA increase, the typical couple will collect an average $2,448 per month, if both people are collecting Social Security benefits.
However, there's a good chance you won't collect these average amounts next year. As I mentioned, the amount you receive in benefits is based upon your own individual earnings history or your spouse's earnings history if you're collecting spousal benefits. It also depends on when you began collecting your benefits.
If you started collecting benefits prior to attaining your full retirement age, then your benefit has been reduced by a fixed percentage for each month you claimed early. If you began receiving benefits after your full retirement age, then your benefit has been increased by a fixed percentage for each month you delayed, up to age 70.
As you can see in the following table, full retirement age varies between age 65 and 67, depending on birth year.
| Full Retirement Age by Birth Year | |
|---|---|
| Year | Full Retirement Age |
| 1937 or earlier | 65 |
| 1938 | 65 and 2 months |
| 1939 | 65 and 4 months |
| 1940 | 65 and 6 months |
| 1941 | 65 and 8 months |
| 1942 | 65 and 10 months |
| 1943-1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 and later | 67 |
Data Source: Social Security Administration.
To better understand the impact of how claiming at different ages impacts your monthly Social Security, let's say Jane has a full retirement age of 66 and a full retirement age benefit of $1,000. If she began collecting Social Security at age 62, her benefit would begin at $750, but if she began collecting benefits at age 70, her benefits would begin at $1,320. Those benefits could then increase annually depending on Social Security's COLA calculation.
Chart by Author.
Because the amount people are awarded in Social Security benefits runs the gamut from a few hundred dollars per year up to a maximum, it might be useful to know how many people collect benefits at various levels. In the next chart, you see that most people collect between $800 and $1,800 monthly in benefits and that very few collect more than $3,000 per month.
Data Source: Social Security Administration. Chart by Author.
If your Social Security is lower than average and you want to boost it, then you should know that Social Security recalculates your primary insurance amount every year to take into consideration any new income-earning years on your record.
This is important because Social Security uses zeros when calculating average earnings over your career for any year you worked less than 35 years. If you have fewer than 35 years of work history, then those zeros could be weighing down your benefit amount. Similarly, low-income-earning years at the beginning of your career or during career transitions could be taking a toll on your payment amount. Because each new higher-earning work year can replace a zero or low-income year on your record, working even part-time may give your Social Security a boost.
If you're younger than full retirement age and you've been collecting Social Security for over one year, you can't get a do-over, but working can cause Social Security's earnings test to kick in, resulting in some of your Social Security benefits being held back if you earn more than an annual limit. Because any money that's withheld goes back to increase your benefit at full retirement age, returning to work could help increase your future benefit that way too.
