Social Security provides a progressive benefit. This means it’s weighted so that it replaces a larger percentage of earnings for workers who were on the low end of the income scale than on the high end. Still, how much you get depends on a formula that uses your earnings. The average people earn through Social Security benefits is just over $1,800 per month, which means most people will need to supplement this money with other retirement dollars. If you’re not sure how to do this, a financial advisor can help create a long-term financial plan.
What Is Social Security?
Social Security is America’s social insurance policy. In addition to retirement benefits, it provides for disabled workers, widows, widowers, ex-spouses and children of older or deceased parents. Combined, 63 million Americans rely on Social Security. It can be a complex system, but it’s there when you need it.
Social Security is most known, though, for the retirement benefits it provides. As such, they were designed to be one leg of the “three-legged stool of retirement.” The other two legs are individual retirement savings and pensions from employers. Yet as pensions disappear as an employee benefit and many people struggle to build retirement savings, Americans rely on Social Security more than ever before. Fortunately, Social Security comes with cost of living adjustments that are inflation-indexed.
The average Social Security check is expected to be $1,827 per month in January 2023, while the maximum check for someone who retired at full retirement age is expected to be $3,627. As a result, most Americans who want to maintain their current lifestyle in retirement need to save and grow their nest egg.
Social Security Eligibility Requirements
In order to be eligible for Social Security benefits, you must earn at least 40 “credits,” which works out to 10 years. That means you have to pay income taxes for at least 10 years (they don’t have to be consecutive) to receive a Social Security check when you retire.
How much will your Social Security check be for? The Social Security Administration (SSA) uses a formula that takes into account your highest earnings for 35 years. The result is called your “primary insurance amount,” which, in turn, represents what your benefits will be once you reach your full retirement age (FRA). Your FRA depends on when you were born:
Full Retirement Age
| Birth Year | Full Retirement Age |
| 1943 – 1954 | 66 years old |
| 1955 | 66 and two months |
| 1956 | 66 and four months |
| 1957 | 66 and six months |
| 1958 | 66 and eight months |
| 1959 | 66 and 10 months |
| 1960 and later | 67 years old |
Don’t be fooled by the term “full retirement age,” though. Just because you’ve reached your FRA doesn’t mean your benefits are at their maximum level. In fact, you have to retire at 70 to get the maximum. Generally, for every year you delay retiring after your FRA and until you reach 70, your benefit increases 3% to 8%, depending on the year you were born.
On the flip side, every year you retire before your FRA, starting at 62, reduces your benefit. So retiring at 62 will reduce your benefit by 30%.
Social Security Taxes
Before you retire, Social Security taxes are taken out of your wages with every paycheck. Those payroll taxes help pay for the vast benefits program of the SSA. That’s where things can get controversial, with some saying that Social Security is too expensive, too insolvent and too large. Overall, though, it’s one of the most popular government programs. Polls show that a majority of Americans would even be willing to pay higher taxes to keep Social Security going.
As far as exact Social Security tax rates go, the standard is 12.4%. However, this rate is divided between you and your employer to the tune of 6.2% each. Self-employed individuals must, by law, cover that entire 12.4% on their own. If you’re self-employed, you may be able to get some of that back via an above-the-line deduction.
For 2019, the IRS would only levy the 6.2% Social Security tax on up to $132,900 of your income. Starting in 2020, though, that limit will jump to $137,700. Because of this, the most you’ll pay in Social Security taxes annually in 2019 is $8,239.80. You’ll pay a maximum of $8,537.40 in 2020.
Here’s an overview of what the Social Security tax looks like in practice:
Social Security Tax Examples
| Annual Salary | Total Social Security Tax |
| $30,000 | $1,860 |
| $50,000 | $3,100 |
| $75,000 | $4,650 |
| $100,000 | $6,200 |
| $150,000 | $8,537.40 (above the cap) |
| $200,000 | $8,537.40 (above the cap) |
Social Security and You
Social Security helps millions of people live with dignity. When people fall into poverty, they suffer – and so does the economy. Americans with no income can’t buy goods and services or invest in companies. The idea behind Social Security is to protect individuals and society as a whole by providing a safety net.
Of course, some people pay into the system who don’t really need the Social Security checks they eventually claim. To wealthy people, Social Security retirement benefits are a drop in the bucket of their total financial resources. Even so, the fact that it’s a universal benefits system – not just one that targets middle-class and working-class Americans – is a large part of Social Security’s enduring popularity. However, some argue that all Americans could potentially see stronger benefits through a system of privatized Social Security.
If you’re approaching retirement, you’re likely wondering how big your Social Security check will be. You can estimate your Social Security benefits and start working on a budget for your post-work years even before you apply for Social Security benefits. Our retirement calculator can help you determine if you need to save more.
One of the most important decisions you’ll make around retirement is when to start claiming your Social Security benefits. You can claim reduced benefits starting at age 62, wait to claim until your full retirement age at 66 or 67 (depending on when you were born) or delay any time up to age 70. While it may sound counterintuitive, you may end up receiving more if you delay. Of course, whether you do receive more depends on how long you live, or if you’re married, how long you and your spouse live. You should take your and your spouse’s health into account when deciding when to sign up for benefits.
The Bottom Line
Social Security benefits were created to help individuals have income during retirement, especially those that can’t afford to have large payouts or to save throughout their life. It’s a way for people to get by when they can no longer work. The amount you’ll earn in Social Security benefits is going to vary greatly by how much you earn over the 30 years prior to retirement. However, the maximum benefit amount caps out at just over $3,600 per month.
Tips for Retirement Planning
- Saving is important but most people aren’t likely to stow away enough to last all of their golden years. Likewise, Social Security can help but it isn’t likely to sustain your current lifestyle. Instead, you will likely need your savings to grow through investments. For help with this, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Taxes can take a big chunk out of your retirement income, depending on where you live. To find out if you should relocate after you hang up your hat, check our story on the best states to retire for taxes.
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