AMERICANS with no retirement savings and who plan to just claim Social Security in their golden years may be in for a nasty surprise.
That’s because Social Security isn’t typically meant to replace your entire income when you retire.
In fact, the rule of thumb is that Social Security benefits replace around 40% of pre-retirement income.
Nearly nine out of 10 people aged 65 and older were receiving a Social Security benefit as of December 31 last year.
Of these, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
If you’re currently planning to follow a similar path, we explain how much you can expect to get and ways to boost the payments.
How much you’ll get in Social Security
If you’re planning to retire on just Social Security and you’re single, you may be forced to live on just $1,657 a month on average, or $19,884 a year.
That’s the average monthly benefit individual seniors are in line for come January of 2022, once the cost-of-living adjustment (COLA) of 5.9% comes into effect.
For a retired couple who are both receiving benefits, the average monthly check will increase from $2,599 to $2,753 in the new year.
Over a year, this amounts to a total household income of $33,306.
Meanwhile, a widowed mom of two children will receive $3,187 a month in 2022, working out as $38,244.
Of course, while it’s possible to get by on the amounts if you live frugally, you may want to boost your payments for a richer life in retirement.
How to boost Social Security payments
There are three main ways to boost your monthly Social Security payments – increase your earnings, work at least 35 years and delaying your claim.
We break down your options below.
1. Boost your earnings
The Social Security system isn’t universal – instead, your future benefits will depend on your earnings history, among other factors.
In other words, the more money you earn, the higher your benefit will be.
To get the maximum Social Security benefit, you’ll need to earn the maximum wage that’s subject to Social Security taxes.
The maximum wage cap is $142,800 in 2021, but it will increase to $147,000 in January next year.
In other words, as long as you earn $147,000 next year and others, you’ll set yourself up to get the maximum retirement benefit in future.
If your income isn’t high enough for the wage cap, keep in mind you can also count extra income made from side hustles towards it.
2. Work at least 35 years
Your career may last way longer than 35 years, but it’s only your highest-paid 35 years that count towards calculating your Social Security benefit.
It means it’s important to work a full 35 years, even if you’re a higher earner.
Otherwise you’ll have $0 in earnings factored into your benefits calculation for each year you’re missing an income.
This would leave you with a lower monthly benefit in retirement.
To get the maximum Social Security benefit, you need to hit the maximum wage cap for 35 years.
3. Delay your claim
Next up, you may want to delay your claim beyond full retirement age (FRA), which is when you can claim your benefit in full.
If you were born in 1960 or later, that age is 67. For others, it’s 66 and a specific number of months.
For each year you delay your Social Security benefit claim past your full retirement age, your benefits grow by 8%, up until the age of 70.
After this, you can’t get any more delayed retirement credits.
We explain why the COLA increase for Social Security is bad for claimants and future retirees.
We also reveal how working while claiming Social Security affects your checks.
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