Wednesday, February 1, 2017

What is the Average Amount of Social Security?

How much will your Social Security benefits be, compared to what the average recipient receives?  Every year, the government mails you an estimate of the amount you can expect to receive in Social Security benefits when you retire.  When you look at those statements, how do you know if your benefits are about average, higher than average, or less than what the typical recipient will receive?  This article will help you determine if your retirement is on track compared to other retirees. 

How Much Social Security Does the Average Retiree Receive?

The numbers below are based on January, 2017 figures. If you are reading this after 2017, you can expect that the benefits will have increased slightly.  However, because the cost-of-living increases are typically modest, these numbers are unlikely to change dramatically.

According to SSA.gov, the numbers below are for the average retiree. 

Average Social Security benefits:     $1,360 a month / $16,320 a year
Average Social Security for couple:  $2,260 a month / $27,120 a year

Although this is not a large amount of money, according to current government estimates, it does mean the average individual or couple will receive enough income from their Social Security benefits to not fall below the poverty line.

While your Social Security income may not officially leave you in poverty, the amount is often substantially below what the average working individual or couple received in earned income, especially during the decade or two before they retired.  Consequently, the typical retiree often sees a significant drop in income, if their Social Security benefits are their only source of income during retirement.

How Much Will Your Benefits Increase Each Year?

Social Security benefits only increase at the rate of inflation, because retirees periodically receive a cost-of-living increase.  However, over the past few years, the cost-of-living increases have been either mostly or entirely eaten up by increases in Medicare premiums.  In other words, Social Security recipients frequently do not receive any increase in their annual benefits, even when there is inflation.

To make matters worse, the government is considering changing the way it estimates the rate of inflation for Social Security beneficiaries.  Currently, they use the CPI-W, which is the abbreviation for the Consumer Price Index for Workers.  This is the increase in the cost of consumer goods and services which the average worker has experienced over the period of a year.  However, the government wants to change to using a Chained CPI. The Chained CPI is a less generous Consumer Price Index which assumes that, as prices go up, a retiree will substitute their purchases for less expensive items. Therefore, cost-of-living increases can be smaller.  The Chained CPI does not take into consideration the fact that many retirees are already purchasing the least expensive items they possibly can.

In addition, neither Consumer Price Index considers the fact that many retirees actually spend more money on certain items after they retire.  For example, they may spend more on medical care or to hire people to help them do yard work or clean their homes.

What Happens to a Couple's Social Security if one Spouse Dies?

Another problem is that a married couple will see their household income drop by approximately 33 to 40 percent when one spouse dies.  This is because the surviving spouse will only be paid the higher of his or her own benefit or that of their deceased spouse ... but not both.  Since their house payments, property taxes, utilities and similar expenses will not decrease when their spouse dies, the surviving spouse may suddenly find themselves in worse financial shape.

What is the Future for Social Security?

Unless Congress takes steps soon to increase the size of the Social Security Trust Fund, it is expected to run out of money within 17 years ... or by 2034.

This does not mean that Social Security will cease to exist.  Current workers will continue to pay enough into the system to allow the Social Security Administration to keep paying between 74 percent and 79 percent of the promised benefits.  However, it does mean that retirees could see a 21 to 26 percent decrease in their benefits.

The sooner Congress resolves this problem, the easier it will be for them to begin refilling the Social Security Trust Fund.

What Can You Do to Protect Yourself?

If you have not yet retired, you may want to postpone retiring as long as possible.  If you wait until age 70 to begin collecting your benefits, you will maximize your benefits.  In addition, waiting to retire will give you a few more years to increase the amount of money in your personal retirement accounts, thus making it possible for you to have more resources for supplementing your income after retirement.

If you are over the age of 50, the amount you can put in a tax deferred retirement account jumps from $5,500 to $6,500.  If you have a company 401(k), the amount you can contribute at age 50 and over jumps from $18,000 to $24,000 a year.  Of course, you can also save or invest additional amounts of money, if you can afford to, although those amounts would not be tax deferred, at this time.  However, the allowable amounts for tax deferrals could go up in coming years.

Once you are retired, plan to use no more than 3 to 4 percent of your total savings each year, which would allow you to have extra income for 25 to 33 years, or longer.

Looking for more information on financial planning, where to retire, Social Security, Medicare, common medical problems or changing family relationships?  Use the tabs or pull-down menu at the top of the page to find links to hundreds of additional helpful articles.

You are reading from the blog:  http://www.baby-boomer-retirement.com

Photo credit:  morguefile.com

Source:  fool.com/retirement/2017/01/20/what-will-the-average-retiree-get-from-social-secu.aspx

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