(Christy Bieber)
In 2022, retirees will receive an average Social Security benefit of $1,657. The annual income of $19,884 this produces isn’t exactly a generous amount of money to live on.
Some people, however, end up with benefits well above this amount. Here’s how you can tell if you’re on track to be among those retirees whose benefits exceed the typical amount paid to your peers.
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Will your Social Security benefit be above average?
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If you want to get an above average edge, there are a few key things you need to do:
- Earn more than most of your peers for a long time. The average salary of your 35 highest earning years determines the amount of your benefit. That means beating the average salary in just one or two years isn’t going to be enough if you want a Social Security check that’s way above what the typical retiree receives. You must consistently earn a higher salary than your peers. Since the Bureau of Labor Statistics reported median weekly earnings for full-time workers at $1,010 in the fourth quarter of 2021, you would need to spend many years working at a salary above that level, or its equivalent adjusted for inflation.
- Work for a long time. A lot of people have bad years where they don’t earn much, maybe because they’re unemployed for part of the year or just starting a new career. If you’ve been working for 35 years or less, every year of your career will be part of the average salary used to set your benefits – and maybe even some years where you won’t earn a dollar will be included. This makes it even harder to beat the average edge of $1,657.
- Report your claim for benefits. Even if you work a long time and earn a good living, you could end up with a benefit that does not exceed the average. This could happen if you reduce your checks by starting them early. If you want your standard benefit (based on average earnings), you must claim it at full retirement age (FRA). That’s between 66 and four months and 67 – which is long after you first became eligible for Social Security at age 62. And if you want to increase your standard benefit to help you earn higher benefit checks than your peers, you have to wait beyond FRA to maximize the deferred retirement credits that can be earned until age 70.
In other words, beating the average Social Security benefit is a lifelong endeavor that will only pay off if you’re able to earn big bucks for a long time. and Avoid inadvertently running down your checks by claiming early.
You still can’t live on just above-average benefits
Even if you beat the average Social Security benefit, it’s important to remember that you won’t be able to live on Social Security income alone.
To beat the average, you need to have a higher income for many years, so you’ll be used to a higher standard of living, and you probably won’t want to take a huge pay cut after leaving the workforce. And unfortunately, that’s exactly what would happen if you had no extra savings, because Social Security benefits are meant to replace about 40% of pre-retirement earnings.
To ensure you have enough money, it is best to invest regularly and build a diversified portfolio. Investing in index funds is one of the easiest ways to do this. An index fund that tracks a financial index, such as the S&P500will provide easy diversification with low fees since your investment does not need to be actively managed, as it only mimics the composition of the index.
While you won’t beat the stock market by choosing an index fund that tracks the performance of the S&P 500 or the market as a whole, investing in just one can save you enough without spending a lot of time picking individual stocks to buy. .
If you regularly invest in an S&P 500 index fund over your career, your savings should provide plenty of money to supplement Social Security – whether your benefits exceed the average, fall below, or are just around the monthly average of $1,657. .
The $16,728 Social Security premium that most retirees completely overlook
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