When can you retire? It's a question most everyone asks themselves in their working years. And in almost every case, the answer is ultimately a matter of money -- you need a minimum amount of it to live on in retirement. To have it then, of course, you need to earn it now.
The chief challenge: It's not easy to predict future income based on your current earnings and your current rate of return on your savings.
You can, however, at least start developing a retirement budget using broad data like the average Social Security income at a particular age. For this exercise, we'll pick the age of 65.
The cost of claiming too early
For the record, Social Security retirement benefits shouldn't be your only source of retirement income. It's intended to provide only a portion of your income in retirement. Depending on how much you make and save in your working years, the Social Security Administration estimates these benefits will replace around 40% of your pre-retirement income. The rest is up to you.
Just bear in mind you probably won't need to replace 100% of your work-based income once you retire. The rule of thumb is that you'll need to replace 80% of that amount.
You'll also want to remember that you don't qualify for all of your intended Social Security benefits at the age of 65.
You can collect a reduced portion of your eventual benefits as early as 62 years of age, but to collect 100% of your intended monthly payments you must first reach your full retirement age (or FRA) before filing for benefits. The chart below shows FRAs for those born after 1943, and you can see that the FRA is gradually rising toward 67 years of age for anyone born in or after 1960. On the flip side, if you're willing to postpone claiming your benefits, you can collect more. Anyone waiting until they turn 70 to begin collecting their Social Security checks will see payments that are anywhere from 24% to 32% bigger than those they'd collect at their official FRA.
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Whatever the case, the average monthly Social Security payment being made to 65-year-olds in 2024 is $1,505. That's $18,060 per year.
The figure could have been smaller, by the way. The average payment for anyone claiming benefits at the earliest possible age, 62, is a little less than $1,300. At the other end of the spectrum, delaying Social Security retirement benefits to the age of 70 pushes these average monthly payments up to $1,963. The number for 65-year-olds is also markedly less than the overall average of $1,709 per month.
Claiming benefits early can be costly.
Plan beyond Social Security
If you've only been mulling the idea of claiming benefits at 65 years age -- or at any point before reaching your FRA -- these numbers above might just lead you to change your mind. A couple-hundred dollars per month (if not more) is no small amount for the average household, after all.
That being said, don't get so caught up in the search for ways to maximize your eventual Social Security benefits that you forget to save on your own. If you do it consistently and invest wisely for growth, your own nest egg will likely be capable of generating just as much if not more income for you in retirement than Social Security ever could.
To this end, here's another rule of thumb that might help you better plan for your retirement: Saving just 15% of your income for the entirety of your wage-earning career should allow you to maintain your standard of living in retirement.
This math of course assumes you'll work between 30 and 35 years, and will then retire in your 60s. It also assumes you'll invest wisely, achieving growth that measurably outpaces the impact of inflation. You may also need to adjust the amount of your annual contribution if you earned considerably more later in life than you did when you were younger, or vice versa. Again, it's just a starting point.
The ultimate goal is still the same, though. That is, save so much and grow your retirement fund so well that you don't even have to worry about how big or little your Social Security check is when you become eligible to claim benefits.
