The average Social Security benefit for a 65-year-old is:
When it comes to retirement income planning, knowledge is power and time is your friend.
Retirement planning is an important aspect of financial security, and understanding your Social Security benefits plays an important role. For many Americans (about 68 million, according to the Social Security Administration), monthly direct deposits are an important part of their income after work.
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The average monthly Social Security income for a 65-year-old is $1,505, according to the government’s most recent annual data released at the end of 2023. Now this is just an average. How much people actually receive depends on a variety of variables, most notably their lifetime earnings history and the age at which they begin receiving benefits.
You’ll also need to consider tax consequences and passive income once you start Social Security. It’s important to fully understand how all of these factors affect your Social Security income to ensure you receive the maximum benefit.
But for now, let’s take a look at what determines what you get first.
Factors Affecting Social Security Benefits
One of the most important factors affecting Social Security benefits is your average indexed monthly earnings (AIME). This figure is calculated based on your highest earnings over 35 years. The Social Security Administration (SSA) uses a formula to convert AIME to a Primary Insurance Amount (PIA), which helps determine your monthly benefit. If your earnings are less than 35 years, 0 is taken into account and your benefit is reduced.
Then there is the age at which you start receiving benefits. Even though you can start taking Social Security benefits at age 62, claiming benefits before your full retirement age (FRA) will permanently reduce your benefits. But you will get it for a few months.
FRA is age 66 for people born between 1943 and 1954, and gradually increases to age 67 for people born after 1960. If you delay claiming benefits after FRA (but only until age 70), your monthly payment will increase. But you can get it for fewer months.
Strategies to maximize profits
To maximize your Social Security benefits, consider working for at least 35 years so that years without earnings affect your calculations. Additionally, increasing your income can directly affect your benefit amount.
Delaying claiming benefits can be another successful strategy. Each year you delay expiring your FRA until age 70, your benefits increase by about 8%. If you wait, your monthly income could increase by hundreds of dollars a month or more, giving you greater financial security as you age. Things like your life expectancy should be taken into consideration, but you should also consider how quickly you need the money to figure out whether it makes sense to delay and take your pension for fewer months overall.
Will averages help you?
The numbers change every month, but the average monthly Social Security retirement benefit is about $1,900 per month, or about $22,800 per year. This may not be a large amount depending on where you live and the cost of ownership, so it’s important to consider additional sources of retirement income.
Personal savings, retirement accounts like a 401(k) or IRA, and other investments can help you build additional funds in retirement, and diversifying your income sources reduces your dependence on Social Security and improves your financial stability.
Healthcare costs are another important factor. These expenses tend to increase as you age, so it’s important to predict them. Medicare doesn’t pay for everything, and it doesn’t start until age 65 for most people.
A health savings account (HSA) or supplemental insurance can help fill in the gaps and prepare for future medical expenses.
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Today is the time to plan tomorrow
There are many online resources to help you calculate your potential Social Security income, but it can still be complicated. Creating a free personal account with Social Security can be a good step to explore your future. It may also be reasonable to consult with a qualified tax professional and/or financial advisor.
