Social Security Benefits at Age 65: An Averaged Analysis
The Social Security Administration (SSA) publishes an annual report detailing benefits received by eligible individuals, providing valuable information for individuals considering retirement or already receiving benefits. As of the SSA's most recent report (2023), the average Social Security retired worker benefit for a person aged 65 is £1,563.06 per month.
The process of calculating retirement benefits involves several steps. First, the SSA adjusts historical earnings to reflect changes in national wage levels up to the age you turn 60, ensuring past earnings are comparable to current wages. Next, the SSA takes your 35 highest-earning years (adjusted as above). If you have worked fewer than 35 years, zeros are included for the missing years, lowering your average.
The sum of those 35 years of indexed earnings is divided by the total number of months in 35 years (420 months) to get your average indexed monthly earnings (AIME). This AIME is then applied to a progressive benefit formula using fixed bend points to calculate the primary insurance amount (PIA), which is the monthly benefit payable at full retirement age (currently age 67 for those born 1960 or later).
Your AIME goes through a progressive formula with bend points to calculate your PIA: - 90% of the first £1,226 of AIME, - 32% of the amount between £1,226 and £7,391, - 15% of the amount above £7,391.
This formula is designed to replace a higher share of earnings for lower earners and a smaller share for higher earners. If you claim benefits at your full retirement age, you receive your full PIA. Claiming benefits earlier than your full retirement age results in a permanently reduced monthly benefit, while delaying benefits beyond full retirement age up to age 70 increases your benefit by a certain percentage (about 8% per year), with the maximum benefit achievable at age 70.
The average 65-year-old person receiving retirement benefits through the SSA receives an annual benefit of £18,756.72. It's important to note that this average benefit amount indicates that many individuals receive less and many individuals receive more. The age at which a person starts taking retirement benefits affects the percentage of the full possible amount they receive. Claiming benefits at the minimum age of 62 results in a smaller percentage of the possible benefit amount, while waiting until age 70 results in receiving the full possible amount of retirement benefits.
In summary, your retirement benefit is mainly based on your indexed earnings over 35 years and the age at which you claim benefits; earlier claims reduce your monthly amount, while delaying increases it. The benefit formula uses bend points to apply different replacement rates on portions of your average earnings, making Social Security benefits progressive and more favorable to lower lifetime earners. The data in the SSA's reports can help retirees and those approaching retirement make decisions and plan for the future.
- To maximize your Social Security retirement benefits, you can consider delaying claiming until the age of 70, as this will increase your benefit by a certain percentage (about 8% per year) and result in receiving the full possible amount of retirement benefits.
- If you seek to have a better understanding of personal-finance matters related to retirement, the Social Security Administration's annual reports offer valuable information regarding the average Social Security benefits received by eligible individuals, providing insights into the process of finance calculations and help individuals make informed decisions and plan for their future.
