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Social Security: How Much Will You Get?

Have you ever thought about how much you will get for Social Security? Have you done the research and found out that there are way more choices to make than you originally thought?

If you're single, you have to consider how much you've contributed, your life expectancy, and how much you want to protect yourself from living too long. If you're married, in addition to these you have to consider the relative ages of you and your spouse as well as the relative income differential of you and your spouse. 

How do you make sense of it all?

What Is Social Security?

Social Security is a government system and provides income to people in retirement (also disabled people, but that's a different topic). For retired people, they get a check based on their lifetime earnings, and the amount of this money grows with inflation. They call this a cost-of-living-adjustment, or COLA. You get Social Security retirement benefits until you die.

In addition to getting benefits for retirement based on your earnings, benefits are paid to survivors if someone passes away who was eligible for benefits. These are called survivor benefits. 

Social Security Is Not An Investment

I want to make sure people understand Social Security is not an investment; it's a tax. There aren't many situations where our taxes and the government expenditures are so closely related, and that gives it the feeling of being an investment, but our taxes pay current benefits. There is no account in our names and we aren't owed anything, technically. Further, Social Security was never intended to be anyone's sole source of retirement income. 

Even so, Social Security acts more like an annuity than an investment, and annuities are insurance products. 

When Can You Claim?

You can get benefits when you hit your full retirement age, or FRA. This has going up depending on when you were born. The Social Security Administration has a table that shows you when that is. If you were born after 1960, your FRA is 67 years old. 

You can take benefits early, but you pay a steep penalty for doing so. For example, if you start taking benefits at age 62, which the first year you're able to, your benefits will be reduced by about 30%. That means for the rest of your life your checks will be 30% less than they would have been if you filed at your FRA. 

You can also take benefits later than your FRA. By doing so you are rewarded with an increase in benefits by 8% per year. I want you to think about that as a guaranteed, government backed return. You won't find that in any investment. Plus, since these benefits last for the rest of your life (and your spouse's life), delaying is often a great strategy to increase your lifetime benefits. 

You can only delay up to age 70, though. Meaning, if you are 70 or older and haven't filed for Social Security benefits yet, you are leaving money on the table. There is no reason to delay benefits if you are in your 70s.

For The Average Person, It Doesn't Matter When To Claim

If you live to average life expectancy, then it doesn't matter when you file for benefits (as long as it's between 62 and 70). That's because these formulas were created with life expectancy in mind. On average we live to about 80, and on average we collect the same benefits. 

So there is some situations where filing early could make sense. If you are in poor health and/or have a history of short life expectancies, then getting money as soon as possible can make sense.

However, if you have a history of your long life expectancies, then it probably makes sense to delay as long as possible so you get the largest check you can for the rest of your (and your spouse's) life. 

Hedge Against Living Too Long

Uh oh...I hate using jargon. Hedge just means preparing for something that could happen. Even if you don't have a history of long life expectancies in your family, you can delay to hedge yourself just in case. If you die to early, you don't need money anymore. If you live too long, you can start to run out of savings. This is how Social Security acts like an immediate annuity. It protects you from the risk of living too long by providing a paycheck for your whole life. By delaying you make that paycheck as large as possible. 

Complexity, File-And-Suspend, and Disclaimer

There used to be a strategy that many people used called file-and-suspend. This was effectively a loophole that was closed. Many people think that since that strategy went away, somehow deciding when to file is easier. I disagree. The file-and-suspend strategy was a slam dnk for people. Now that it has gone away, it is more important to consider the differences in how long you think you will live, how long your spouse thinks he or she will live, the differences in age, the differences in lifetime earnings, and the probability that at least one of you will live sufficiently longer than age 80. 

There are a lot of rules for Social Security and they are quite complex. If you are interested in learning more, check out the SSA's website at My purpose of this post was not to give advice on when to file, but rather to stop people from filing as early as possible without considering other options (which happens very often). 

Consider your situation and carefully consider your Social Security options and you'll be on your way to good money health. 

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About the Author

Derek Hagen, CFA, CFP, FBS, CFT-I, CIPM is a speaker, writer, and coach specializing in financial psychology, meaning and valued living, resilience, and mindfulness.


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