If you haven't yet, at what age do you think you'll retire? Most people say the magic number is 65. The actual average retirement age for people living in the United States, however, is a modestly lower 63. That's shortly after they're able to begin collecting respectable but reduced retirement benefits from Social Security.
Just for the sake of acknowledging the current cost of living, though, let's say you're going to continue working until you reach your goal of 65 years of age. How much are your monthly Social Security payments likely to be then?
Keep reading for the answer, and some important perspective on the matter.
The average 65-year-old is collecting...
The Social Security Administration reports that as of the end of last year, the average 65-year-old was enjoying a monthly benefit of $1,611. Applying this year's cost-of-living adjustment of 2.5% would put the figure closer to $1,651 per month now.
Just bear in mind that that's an average based on a wide range of inputs. Some of this crowd may be banking on the order of $4,000 per month. Other people are seeing monthly payments of less than $1,000.
Still, the average is the average. This relatively small figure begs a big question... is there a way to make the number any bigger? There is.
First, understand that any 65-year-old currently collecting any non-disability-related Social Security has already opted for a slightly smaller payment by virtue of filing for benefits before reaching their intended full retirement age, or FRA. (For people born in or after 1960 your FRA is 67, while for people born in or before 1959 it's a few months less, gradually scaling back to the previous FRA of 66.)
The difference isn't insignificant, either. Even claiming just two years early reduces your monthly payment to the tune of 13% -- give or take -- depending on when you were born. Putting that in more tangible terms, for the average recipient, the difference in waiting until reaching your full retirement age of 67 would mean a little over $200 more per month. Not bad.
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For what it's worth, waiting another three years to claim benefits when you turn 70 would make your monthly benefit about 25% bigger than it would be if filing at your official full retirement age. That would mean roughly an additional $500 more per month in today's dollars for today's retirees.
An important opportunity, especially for bigger late-career earners
There's an additional incentive for sticking with your job for at least another couple of years after you turn 65, if not five more years. It's got everything to do with how the Social Security Administration calculates what it owes you in retirement.
Most people understand that the more money you earn at a job, the more you pay in FICA taxes, and the bigger your future Social Security benefits get. There's more to the matter, though. For the purposes of determining your monthly payment, the program only considers your 35 highest-earning (inflation-adjusted) years, even if you're going to work more years than that.
But you already know you're going to be working less than 35 years? That's OK. That won't disqualify you from claiming and getting something. The Social Security Administration will simply assign you zero earned dollars for the number of years less than 35 that you didn't actually earn any work-based wages. You might want to make a point of toughing it out for just a little bit longer, if at all possible.
See, if you're in your 60s and still working, there's a good chance you're earning more now (again, even adjusting for inflation) than you were when you were first starting out in your 20s. A couple more higher-earning years could displace a couple of your lower-earning ones if you've seen consistent income growth over the course of your career, perhaps adding an additional couple-hundred bucks to your future monthly payment.
This means even more for anyone who earned below-average wages early on in their work life but is an above-average earner now.
Some other key considerations
Two related ideas also need to be passed along here.
First, while money is important in that it can make life more comfortable and less stressful, it's not everything. Health matters too. So does spending time with friends and family. You may have good reason for claiming Social Security benefits at the age of 65 rather than waiting until you reach your full retirement age. If you've given the matter enough careful thought and still believe that's what's best for you, by all means start collecting benefits when you're 65. While this won't be your exact same number, again, for most people this age their monthly payment is in the ballpark of $1,600.
The other important point to add? Remember that Social Security was never intended to be your sole source of retirement income in the first place. The program estimates that its benefits payments only replace about 40% of beneficiaries' pre-retirement income. The rest of your retirement income will come from you. That means you're going to need to invest at least some of your after-tax income on your own, in vehicles like individual retirement accounts.
Of course, working a few extra years will allow you to tuck away more money in an IRA, while also raising your eventual Social Security payment.
