How Much Social Security Will You Receive?
Will Social Security be there when you retire? Depending on your age, your answer might range from ‘absolutely’ to ‘not a chance.’
The reality is that Social Security is very important to your retirement future. Statistics bear this out. They show that half of the retirees aged 65 or older get ~50% of their income from Social Security.
Your Social Security benefit is a critical piece of your retirement savings puzzle. That’s why you should be getting your Social Security Benefits statement each year. I’ll show you how to do that below. But before I do that, I want to dispel a few myths about the current state of Social Security.
Social Security – is it really broke?
I’m a Gen-X’er. Since the ’80s, I’ve heard countless stories about Social Security going broke. In fact, my assumption for many years was that I’d receive ZERO from Social Security when I retired.
No doubt you’ve heard stories about how Social Security will “run out of money” in the year 2034. These headlines are great for news organizations trying to get “clicks” to their stories. But they don’t tell the whole story.
Here is a short history of Social Security’s finances. Since its creation in 1935, Social Security has taken in more tax revenues than it has paid out in benefits. The extra money was put into a “trust fund” and invested in US Government Bonds. That trust fund “piggy bank” now has about $3 trillion in it.
Unfortunately, we hit a tipping point this decade. Taxes are no longer enough to cover the cost of benefits getting paid out. Little by little, the Social Security Administration (SSA) is having to take money out of its trust fund in order to pay benefits. Between now and 2034, Social Security will keep taking money out of its $3 trillion piggy bank until its balance is $0 in 2034. That’s why the news says Social Security will be “insolvent” in 2034.
“So what happens after 2034?!”
After the Social Security piggy bank is empty, benefit payments will depend on taxes that are received. The SSA provides a useful chart of what would happen to benefits:
Notice where it says “Payable benefits as a percent of scheduled benefits”? In plain English that would read “how much we’ll be able to pay people compared to what we owe them.”
After the year 2034, Social Security will only be able to pay ~74% of the benefits it owes. So if you’re entitled to a $2,000 monthly check when you retire in 2035, Social Security is only going to be able to pay you $1,480 ($2,000 x 0.74).
But hold on….this assumes that Congress won’t step in to fix the situation before 2034. The “fixes” aren’t that complicated or expensive. But we all know that Congress likes to wait until the last minute to do something.
My point is this: Even if there isn’t a “fix” you’ll still get a Social Security benefit. It may be less than what you should get. But it’s not likely to be ZERO.
Getting your Social Security Benefit Statement Online
Go to https://www.ssa.gov/myaccount/. If you don’t already have an account, you’ll need to select “Create an Account” to get set up.
- Social Security Number
- Date of Birth
- Home address
- Primary phone number (cell)
Once you get through the initial screen, you’ll be asked a series of questions to verify your identity.
Finally, you’ll set up a username, password, and a series of additional security questions.
If you want guided instructions, you can visit this helpful 6-minute video from the SSA.
Reading your Statement
Once you’re all signed up and get into the system, you’ll be able to download your Social Security Benefits Statement. You’ve probably received these in the mail at some point. They look something like this example statement from the SSA:
There’s a lot of cool information in your benefits statement. My favorite is looking at my earnings record over the course of my life. Working a lot of hours at $3.50/hour didn’t add up to much in the late ’80s when I got my first job!
Since the topic is retirement, I want to focus on that. If you turn to Page 2 you will see a section called “Your Estimated Benefits.”
In the section I boxed in red, you see three retirement benefit amounts listed. These three amounts are what you’d receive depending on which age you started receiving Social Security.
Your Full Retirement Age is your “normal” retirement age. For most people from Generation X and younger, it’s Age 67.
But you can start taking Social Security as early as age 62. If you do, you’ll receive less money each month, which is why that number is lower. Or if you wait until you’re 70, they’ll pay you more.
Tying Social Security into your Retirement Plan
How do these numbers tie into your retirement plan? Well, a couple weeks ago I wrote a post: Retirement Planning First Steps. In it, there’s a worksheet that helps you estimate how much money you might need each year once you’re retired.
The worksheet looks like this:
Retirement spending is one of the most important variables in your retirement plan. It’s a key factor in determining how much you need to be saving for retirement TODAY. The higher your spending needs in retirement, the more you’ll need to save today so that you have enough money stashed away to live off of.
When you’re retired, your income will come from two main sources. Social Security and your retirement savings.
You can see why your future Social Security benefit is so important to your retirement plan. You’ll need to save for the slice of your future retirement income that isn’t covered by Social Security.
To help you understand how meaningful Social Security might be for you, let’s look at an example: Jane Smith.
– Jane is 45 years old.
– She makes $100,000 a year.
– She expects that when she retires, she will need 80% of her current income to live on ($80,000) after she’s retired.
– Jane will retire at her Full Retirement Age – age 67 – in the year 2040.
The SSA has a “Quick Calculator” that we can use to estimate Jane’s Social Security benefit. Her income is the key driver of her benefit.
The Social Security benefits calculator estimates that Jane will receive $2,662 per month in today’s dollars. That’s $31,944 for an entire year. Let’s put these numbers into the graph.
Jane will end up receiving 40% of her future retirement income needs from Social Security. That’s not chump change!
Of course, Jane has to save for the other 60% of her retirement income need. But she’s saving 40% less than she would have if she was trying to save for the entire $80,000 annual cost of her retirement.
This is why I don’t want you thinking that Social Security “won’t be there” when you retire. You could be putting undue pressure on yourself to save more than you’ll ultimately need. Some Social Security benefit will be there. And it could be meaningful.
If Jane were my client, I wouldn’t use the “quick estimate” I used above. I’d help her download her Social Security benefits statement. Then, we’d have a more accurate estimate for how much Social Security income she could expect to receive.
And having that information would help us figure out how much she’d need to save for the income that won’t be covered by Social Security. See how that works? All these variables tie together.
There are a lot of variables that go into a retirement plan. Do you take Social Security early? Should you wait? At what age do you want to stop working? That’s why I would strongly encourage you to work with a financial advisor on your retirement plan.
But don’t stop at retirement. Get a comprehensive financial plan for your family. I help you figure out your retirement plan and so much more. Managed well, your finances can be a source of confidence and joy for your family. A comprehensive financial plan helps bring purpose to the resources your family has been blessed with.
Get Your FREE Financial Fitness Checklist
FREE FINANCIAL FITNESS CHECKLIST
Get organized with your finances so you can have peace of mind you're not missing anything super important.
Would you like me to keep you informed of deeper dives into these important financial topics?
431 North Hough Street, Suite 100 in Barrington, IL
(Office Hours by Appointment Only)
Serving clients in local communities, such as Arlington Heights, Barrington, Buffalo Grove, Lake Zurich, Libertyville, and the Greater Chicagoland Area. We also provide virtual services to clients nationwide.