When you're planning for retirement, Social Security should be a key part of your strategy. Regardless of your age, it's never too early to begin thinking about Social Security's role in your retirement finances. For some people, it may be all; for some, it may be most; for others, it may be very little.
Thanks to the cost of living adjustment, the average Social Security benefit is higher than last year. Social Security estimates the average monthly retirement benefit in January 2024 to be $1,907. Here's how you can see if you're on track to receive that amount.
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How your Social Security benefits are calculated
Social Security calculates your retirement benefits using the 35 years when your earnings were the highest in your career. To ensure your earnings can be compared fairly, Social Security indexes your earnings (adjusting them for inflation). This brings your past earnings to today's value.
Your indexed earnings are then added together and divided by the number of months in the years used. If you have 35 years' worth of earnings, your indexed earnings will be divided by 420 (35 years * 12 months). If you got off to a late start in your career and don't have 35 years' worth of earnings, Social Security will follow the same steps but put in zeros for any years short of 35.
This process gives you your average indexed monthly earnings (AIME), which is the basis for calculating your primary insurance amount (PIA). Your PIA is how much you can expect to receive if you claim benefits at your full retirement age. It's calculated from your AIME using a tiered formula incorporating bend points.
Without getting too specific on bend points, they aim to ensure a progressive benefit formula, where lower earners get a higher return in benefits relative to their earnings than higher earners.
How to find out if you're on track for the average benefit
Luckily, you don't have to wait until you claim Social Security benefits to get an idea of your monthly payout. You can check your earnings record on the Social Security Administration website (SSA.gov) to see how much your monthly benefit will be.
Creating an account is pretty straightforward. From there, you'll be able to access your earnings record, which shows the earnings your future benefits will be calculated from. It'll show you your estimated monthly benefit at your full retirement age and if you decide to claim before or after that.
It's a good idea to check your earnings record annually just to make sure your earnings on record are accurate. Mistakes aren't common, but they're also not unheard of. It's always better to be safe than sorry.
How to get on track to receive the average Social Security retirement benefit
If you check your estimated Social Security retirement benefits and notice it's below the $1,907 average, you have two ways to boost your future payments.
The first one is to increase your earnings to increase your AIME. Of course, this is a lot easier said than done, but there are some things you might be able to do. The second option is to delay when you claim benefits to increase the monthly payout. Delaying retirement benefits past your full retirement age increases them by two-thirds of 1% for monthly until you reach 70. You can technically delay past 70, but your benefit won't increase, so there's no real reason to do it.
Regardless if you're on track for the average Social Security benefit, the goal should be to have Social Security serve as supplemental retirement income and not the only source. Using resources like retirement accounts can help ease some of the burden in retirement and provide additional financial security.
