Social Security and Retirement

Social Security and RetirementThe Social Security benefits you (and a spouse) will receive at retirement can be estimated based on your average annual income, your current age and your age when you retire. For a more accurate and detailed estimate, visit the Social Security Administration website at where benefits can be determined based upon your exact earnings history and the exact date of your retirement.

How Much Can You Expect to Receive from Social Security During Retirement?

Social Security benefits will probably be an important source of income once you retire. Understanding the factors outlined below can help you predict how much you will receive from Social Security during retirement.

Earnings History

The Social Security program limits the amount of earnings subject to the Social Security tax and then uses that same annual limit in examining your income to determine your basic benefit level. The benefit level calculation takes into account your highest earnings years over a 35-year period to determine your basic benefit. The annual taxation limit and resulting income limit for the basic benefit calculation is $118,500 for 2016.

Retirement Age

If you retire at the normal retirement age, that basic benefit will be what you receive.  If you retire before the normal retirement age, beginning at age 62, the benefit is adjusted downward.  For many years, the normal retirement age was 65.  However, for those born in 1938 or later, the normal retirement age is gradually increasing to age 67 until it reaches 67 for people born after 1959.

The amount of the downward adjustment for early retirement benefits depends on your normal retirement age and how early you begin receiving the benefits. If your normal retirement age is 65 (born before 1938) and you start receiving benefits at age 62, your basic benefit is reduced by 20%. If your normal retirement age is 67 (born after 1959) and begin receiving benefits at age 62, your reduction is 30%.

Cost of Living Adjustments

The Social Security Administration adjusts the payment levels each year to reflect increases in the cost of living (inflation). The 2014 adjustment was 1.5% and the adjustment for 2015 was 1.7%. There was no cost of living adjustment for 2016 as there was no increase in the Consumer Price Index (CPI-W) from the third quarter of 2014 to the third quarter of 2015.

What Does This All Mean for You?

Here are some typical monthly benefits for 2016:

  • Maximum benefit retiring at normal retirement age – about $2,639
  • Average benefit for all retired workers – about $1,341
  • Average benefit for an aged couple with both receiving benefits – about $2,212
  • Average benefit for an aged widow(er) alone – about $1,285

What Should You Do?

First, make sure your Social Security records are accurate. You should receive a statement each year with your earnings history and an estimate of what your retirement benefit would be. Review it carefully and contact a local Social Security office if you find an error.

Finally, note that Social Security alone will probably not enable you to have the retirement lifestyle you want. Therefore, you should take advantage of other retirement plans (employer sponsored plans and IRAs) and save even more.