Social Security has become a financial foundation for our nation's seniors since it was signed into law by President Franklin D. Roosevelt in 1935. According to the Center on Budget and Policy Priorities, Social Security income is responsible for lifting more than 21.7 million people out of poverty each year, including nearly 15.4 million adults aged 65 and over.
The interesting thing about Social Security is that while most retirees rely on their monthly payout, in some capacity, to make ends meet, the average benefit is actually quite modest.
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Here's the blueprint of how your Social Security benefit is calculated
Before digging into what the average Social Security beneficiary is bringing home today, it makes sense to first understand the various components that go into your monthly benefit calculation. To this end, four factors determine how much you'll be paid each month, assuming you've earned the 40 lifetime work credits necessary to receive a Social Security check:
- Work history
- Earnings history
- Full retirement age
- Claiming age
Work history and earnings history are somewhat self-explanatory. The Social Security Administration (SSA) will take your 35 highest-earning, inflation-adjusted years into account when determining your monthly retired-worker payout. If you earn more throughout your lifetime, you'll likely receive a larger monthly benefit from Social Security, up to the maximum monthly payout at full retirement age. Just keep in mind that for every year less of 35 worked, the SSA averages a $0 into the calculation.
The third factor -- your full retirement age -- is completely out of your control. It represents the age you become eligible to receive 100% of your retired-worker benefit, and it's entirely based on your birth year. Most retirees have a full retirement age of 66, 67, or perhaps somewhere in between.
The final factor that determines your Social Security benefit is your claiming age. Although you can begin receiving a monthly check at age 62, patience can be handsomely rewarded. For every year you hold off on taking your benefit, your monthly payout can grow by up to 8%, through age 69.
An easy way to think about the Social Security payout schedule is that any claim prior to reaching full retirement age will result in a permanent monthly reduction of up to 30%. Meanwhile, waiting until after your full retirement age to take benefits can lift your benefit by as much as 24% to 32%, depending on your birth year.
What's the average Social Security benefit today?
Now that you have a better understanding of the elements that mix together to determine your monthly Social Security payout, let's dig into the nuts and bolts of what the average beneficiary is bringing home right now.
Based on the latest data release, the SSA sent out approximately 66,663,000 payments in June 2023, totaling $113.384 billion. Factoring in every single beneficiary -- we're talking retired workers, workers with disabilities, survivor beneficiaries, and all the spouses, children, widow(er)s, and parents of deceased workers that also qualify -- the average Social Security check right now is $1,701.62, which annualizes out to about $20,419 per year.
But there can be pretty significant payout differences when broken out into separate categories. For example, retired workers are taking home the beefiest average Social Security benefit. The roughly 49.4 million retired workers who received a benefit in June brought home $1,837.29. This annualizes out to $22,047 per year.
By comparison, workers with disabilities and survivor beneficiaries actually weigh on the average payout. As of June, the 7.52 million workers with disabilities averaged a monthly check of $1,486.42, while the collective 5.84 million survivor beneficiaries were taking home $1,451.85. Extrapolated over 12 months, the typical worker with disabilities is receiving $17,837, while the average survivor beneficiary is netting $17,422.
Although Social Security isn't going to make its beneficiaries rich, the income the program provides is certainly doing its part to keep people out of poverty.
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All eyes are on Social Security's 2024 cost-of-living adjustment (COLA)
However, beneficiaries care far more about where Social Security is headed than where it's been. All 66.663 million recipients are eagerly awaiting the SSA's cost-of-living adjustment (COLA) announcement, which is due during the second week of October.
Social Security's COLA is a mechanism designed to keep its beneficiaries from losing purchasing power. If the price for a broad basket of goods and services increases, Social Security benefits should, in a perfect world, increase by a commensurate amount. COLA is the increase in benefits program recipients receive most years that accounts for inflation.
An early estimate from Mary Johnson, senior Social Security policy analyst at The Senior Citizens League (TSCL), calls for a 3% COLA in 2024. While that'd be down significantly from the historically high 8.7% COLA in 2023 that lifted the average retired-worker benefit by $146/month, a 3% COLA would still raise the average payout by $51/month next year, and increase the typical retired workers' check by $55/month.
The unfortunate aspect to Social Security's annual cost-of-living adjustment is that hasn't, historically, done the best job of tracking the costs that matter most to retirees.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has been the program's inflationary tether since 1975. But as its full name implies, it's an inflationary index that tracks the spending habits of "urban wage earners and clerical workers." These are often working-age Americans who don't receive a Social Security benefit. Even though more than 80% of beneficiaries are over the age of 62, the program's COLA determinant is based on the spending habits of people predominantly below the age of 62.
According to a separate report from TSCL in May 2023, Social Security income has lost 36% of its purchasing power since January 2000 as a result of CPI-W-based inefficiencies. No matter what Social Security's 2024 COLA turns out to be, it won't come anywhere close to making up for this persistent loss of purchasing power.
