Whether you realize it or not, Social Security is our nation's most important social program. Of the 63 million benefit checks divvied out each month, more than 22 million are responsible for lifting individuals above the federal poverty level, which in 2019 is $12,490 in earned income for a single individual. This ability to provide a financial foundation is most prevalent with senior citizens, where the estimated poverty rate would be north of 40% if the program didn't exist, according to an analysis from the Center on Budget and Policy Priorities.
However, Social Security is also a program that we tend to lean on far too heavily. Though it's only designed to replace about 40% of the average worker's salary during retirement, 62% of today's retired seniors lean on it for at least half of their monthly income, with 34% counting on Social Security as essentially their only source of income.
With that being said, no decision bears more importance for seniors than deciding when to take their benefits.
What goes into your Social Security benefit calculation?
As a quick refresher, the Social Security Administration (SSA) has a formula it uses to determine your monthly payout. This formula takes four main factors into account.
The first two factors -- your work history and earnings history -- are tied at the hip. With the SSA using your 35 highest-earning, inflation-adjusted years when calculating your benefit at full retirement age, it means you'll want to work at least 35 years, as well as earn as much as you can in the years you do work -- up to the maximum taxable payroll cap -- if you want any shot at maximizing your payout. Each year less of 35 worked will result in $0 being averaged into your overall calculation, which will drag down your eventual payout.
However, Social Security is also a program that we tend to lean on far too heavily. Though it's only designed to replace about 40% of the average worker's salary during retirement, 62% of today's retired seniors lean on it for at least half of their monthly income, with 34% counting on Social Security as essentially their only source of income.
With that being said, no decision bears more importance for seniors than deciding when to take their benefits.
What goes into your Social Security benefit calculation?
As a quick refresher, the Social Security Administration (SSA) has a formula it uses to determine your monthly payout. This formula takes four main factors into account.
The first two factors -- your work history and earnings history -- are tied at the hip. With the SSA using your 35 highest-earning, inflation-adjusted years when calculating your benefit at full retirement age, it means you'll want to work at least 35 years, as well as earn as much as you can in the years you do work -- up to the maximum taxable payroll cap -- if you want any shot at maximizing your payout. Each year less of 35 worked will result in $0 being averaged into your overall calculation, which will drag down your eventual payout.
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