You need money -- a lot of it -- if you hope to retire comfortably. Fortunately for most people, we can count on monthly Social Security checks to cover some of our costs, but we don't all get the same amount.
Knowing how much you'll get from Social Security is critical to planning your retirement budget, and finding the answer is a lot easier than you think. In fact, the government has already done the math for you.
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How to estimate your Social Security benefit in retirement
The Social Security Administration keeps tabs on how much money you've paid Social Security taxes on throughout your career, so it's a simple matter for it to plug your information into the Social Security benefit formula to estimate how large your checks will be.
You can access this information by creating a my Social Security account. You'll need to verify your identity, so be sure to have your Social Security number on hand. The first time you log in may take longer than usual since you'll have to confirm your email and enter security codes.
Once you're in, scroll down on the main page until you come to the benefit estimator tool. By default, this gives your estimated benefit at your full retirement age (FRA). It assumes you'll continue to work and earn the same amount as you did last year until you reach your claiming age. But you can change these assumptions.
The tool enables you to see your estimated benefit for any claiming date between 62 and 70 years old. All you have to do is enter the age or date when you plan to apply. Keep in mind, the longer you wait to sign up, the larger your checks will be.
You can also make adjustments to the estimates of your future earnings by entering a different annual salary into the calculator. If you do this, the tool will automatically update its projections. But it's important not to be overly optimistic here. Don't put in what you'd like to earn in the future. Think about what's realistic for you so you can get the most accurate estimate.
Married couples also have the option to estimate what their future spousal benefit could be. But to do this, you need to know your spouse's primary insurance amount (PIA) -- their benefit at their FRA. They'll need to create a my Social Security account as well to give you this information if they're not already claiming. Then you just plug that figure into the calculator to see how much you could get. Remember, between your spousal benefit and your own benefit, the Social Security Administration automatically gives you the larger one in retirement.
What to do with this information
Now that you have an idea of how much you'll get from Social Security each month, you can determine the best claiming age for you. This comes down to your life expectancy and timing. Those who expect to live into their mid-80s or beyond usually stand to gain by delaying Social Security, while those with shorter life expectancies are better off claiming earlier. And if you can't afford to wait, you may have no other option but to claim as soon as you're eligible.
If a lack of income doesn't limit your choices, it's usually best to wait for the age that will give you the largest lifetime benefit. You can estimate this by taking your monthly benefit for a given age and multiplying it by 12 to get your estimated annual benefit. Then multiply this by the number of years you expect to claim. For example, a $2,000 benefit claimed for 20 years gives you a lifetime benefit of $480,000. Compare a few scenarios until you find the claiming age that's most advantageous to you.
Then use this information to figure out how much you must save on your own for retirement. If you've calculated that your retirement will cost you $1.5 million, for example, and you expect a lifetime Social Security benefit of $480,000, you know the remaining $1.02 million will have to come from other sources, including personal contributions, 401(k) matches, and investment earnings.
It's a good idea to repeat this process every year or two to make sure you're still heading in the right direction. If your income changes dramatically or you decide to remain in the workforce longer, this might change your plans for Social Security and your retirement savings strategy. Making small, incremental changes over time can give you the best chance of retiring comfortably.
