Whether you realize it or not, Social Security is liable to play a role in helping you make ends meet during retirement. According to national pollster Gallup, 90% of the retired workers it surveyed this year lean on their payouts in some degree to meet their expenses, with 57% implying it's a "major" source of income. This more or less jibes with statistics from the Social Security Administration (SSA) that 62% of retired workers generate at least half of their income from their monthly payouts. 

There are more than a half-dozen factors that go into determining what you'll eventually receive from the Social Security program, and this sum of factors can lead to wide variances in what retired workers are paid -- even on a state-by-state basis.

Two Social Security cards lying atop fanned piles of cash.

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Retired workers in these states are getting the short end of the stick

Not too long ago, the Social Security Administration released its annual data set that highlights how much aggregate revenue was divvied out to each state for retirement benefits, as well as how many beneficiaries received payouts in each state -- or in layman's terms, it gave those of us with calculators and spare time the ability to calculate how much the average retired worker brought home each month in 2018.

As of Sept. 2019, the average retired worker in the U.S. was bringing home $1,474.77 a month. And according to the SSA's released data as of Dec. 2018, retirees in 21 states were already bringing home more than this amount each month.

But there's another side to this coin. Residents in the following 15 states were bringing home the smallest Social Security benefit checks, as of Dec. 2018.

  1. Louisiana: $1,362.52 per month
  2. Mississippi: $1,369.26
  3. Maine: $1,371.12
  4. New Mexico: $1,378.17
  5. Montana: $1,386.69
  6. Arkansas: $1,386.84
  7. Kentucky: $1,393.31
  8. South Dakota: $1,396.20
  9. Alaska: $1,400.70
  10. North Dakota: $1,404.05
  11. Oklahoma: $1,424.85
  12. Nevada: $1,429.46
  13. Idaho: $1,429.82
  14. Texas: $1,431.47
  15. California: $1,432.46

I'd be remiss if I didn't (again) point out that this payout data is from Dec. 2018. This means it isn't factoring in the 2.8% cost-of-living adjustment (COLA) that was passed along to beneficiaries in Jan. 2019, and it won't account for the 1.6% COLA that Social Security beneficiaries will receive this coming January.

How is it that these states are getting the proverbial short end of the stick when it comes to Social Security benefits? Let's take a closer look.

A pen lying atop a W2 tax form that's pointing to wages that have been taxed by Social Security.

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Your earnings history matters

The most logical reason why many of these states offer a retired-worker payout that's well below the national average is lifetime earnings. Of the more than a half-dozen factors that go into determining your Social Security benefit, your earnings play a significant role. Folks who earn more over their lifetimes are considerably more likely to generate a higher monthly payout from Social Security.

To keep this as close to an apples-to-apples comparison as possible, I took a peek at 2018 median household-income figures from the U.S. Census Bureau, and a number of these bottom-15 states are well below the U.S. median of $61,937. For example, New Mexico, Arkansas, Louisiana, and Mississippi all have median household incomes below $50,000, with Kentucky and Oklahoma between $50,000 and $52,000.

A number of other states on this list, including Montana, Maine, Nevada, Idaho, and South Dakota, were all between $55,000 and $60,000, and therefore also below the national average. In short, lower instances of earned income should translate into a smaller Social Security payout. 

A person filling out a Social Security benefits application form.

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Claiming age is important

Whereas median household income data is pretty easy to quantify, claiming age is not. This variation in state-level payout might be explained, in part, by when retired workers are choosing to begin taking their benefits.

As some of you might already be aware, your claiming age has a pretty big impact on what you'll receive each month from Social Security. Although retired-worker benefits can begin at age 62, the program incents filers to have patience and wait until age 70, with benefits growing by up to 8% per year. All things being equal, such as earnings history, work history, and birth year, a retired worker claiming their payout at age 70 could net up to 76% more per month than an age-62 claimant.

According to data from the Social Security Administration, most retired workers begin taking their benefits well before they reach their full retirement age and are therefore receiving less than 100% of their monthly payouts. It's possible that retired workers in some of these states are taking their payouts earlier than the national average, thereby lowering the average monthly payout to beneficiaries in these states.

A senior man using a magnifying glass to closely examine dollar signs on the table in front of him.

Image source: Getty Images.

Cost of living could play a role

Lastly, I wouldn't overlook the possibility of the cost of-living playing a role in this state-by-state Social Security payout data.

It's no secret that certain states are more expensive to live in than others. It's also a well-known fact that a Social Security payout isn't going to make anyone rich. With more than 3 out of 5 current retirees counting on Social Security for at least half of their income, some of these folks might be choosing to retire in states that have generally lower costs of living. This will allow their Social Security dollars to stretch further, especially if they're not receiving much on a monthly basis.

The quickest way to examine state-by-state affordability is with the Cost of Living Index, which quantifies housing, utility, transportation, grocery, and miscellaneous costs as a number. With a baseline of 100, any number below 100 is considered cheaper than the national average, with a figure above 100 signifying a category that's pricier.

As an example, the 2019 Cost of Living Index found Mississippi (86.1), Arkansas (86.9), and Oklahoma (87) to be the three lowest-cost-of-living states. Based on these readings, it's 13% to 14% cheaper to live in these three states than the national average. Though this explanation doesn't work with all 15 states -- California, Alaska, and Maine are considerably pricier than the national average -- it does make sense for a majority of them.