Since the Social Security benefit was created in 1935, many Americans have relied on it as a stable source of income throughout their retirement. Ida May Fuller, a legal secretary from Brattleboro, Vermont, received the first Social Security check in the amount of $22.54 in 1940. And it was a monthly Social Security benefit of $105 that helped Harland "Colonel" Sanders, at age 65, launch his Kentucky Fried Chicken franchise.
Today, more than 51 million retired workers receive $98.2 billion in monthly benefits, with an average monthly benefit of $1,918 (or $23,016 annually), according to June 2024 data from the Social Security Administration.
Understanding if your Social Security benefit will be adequate to either supplement or solely provide a secure retirement depends on a variety of key factors. However, research from Fidelity estimates many retirees will likely need to rely heavily on their personal savings and pension income to replace about 45% of their pre-retirement income.
Here are three tips to help maximize your own Social Security benefits in retirement:
Know the Flow
About half of American workers (52%) have calculated how much they’ll need to set aside for a comfortable retirement, according to the Employee Benefit Research Institute’s “2024 Retirement Confidence Survey.”
How much income will you need to live comfortably in retirement? Several variables come into play. A CERTIFIED FINANCIAL PLANNER® professional can help you create a tailored plan that factors in your preferences and other considerations. Do you plan to work part time in retirement? If so, how will this income impact your financial plan? How much of your required income will come from personal retirement accounts (e.g., IRA or a workplace retirement plan)? What is your estimated Social Security benefit? If you are unsure of your Social Security benefit amount, request an estimate through the Social Security Administration’s website.
Timing is Everything
Among the top ten highest-paid major league baseball pitchers, why does Los Angeles Dodgers' Shohei Ohtani command an annual contract worth $70 million, and Seattle Mariners’ Luis Castillo have a much smaller $24.2 million annual contract? Both play with the same standard-sized baseball. So, what separates the top-performing pitchers? It’s timing.
Timing can have a significant impact on your Social Security benefit, too. More than 31 million retired U.S. workers (or 64%) currently receive a reduced Social Security benefit because they initiated it early, according to data from the Social Security Administration. What’s considered any early benefit? Any benefit taken prior to full retirement age, which is age 67 for individuals born in or after 1960, and age 66+ for individuals for individuals born between 1955 and 1960.
Couples Can “Split” the Difference for Higher Income
Katherine was born in 1960, and her husband, Ken, was born in 1962. Their full retirement age is age 67, at which time Katherine’s projected monthly benefit is $975, and Ken’s estimated monthly benefit is $2,100.
Since Katherine and Ken have saved for retirement, they decide to use the “split strategy” for their Social Security benefits. Katherine starts her benefit at age 67, and Ken delays his own benefit until age 70.
Because Ken delayed his monthly benefit, it grew to $2,715. Once Ken files for his benefit at age 70, Katherine switches to a spousal benefit (50% of Ken’s benefit at his full retirement age); She begins to receive a monthly benefit of $1,050. Plus, if Katherine survives Ken, she will be eligible to collect a higher benefit because Ken delayed his benefit until age 70.
Understanding Social Security benefits can take some work. However, you have more control than you realize regarding how much your benefit amount could be and how it factors into your overall retirement plan. A CFP® professional can help you maximize your Social Security benefits and minimize any potential complications. Find your CFP® professional today.