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Thayer Partners Blog

7 Fun and Not-So-Fun Facts About Social Security Income

[fa icon="calendar"] Nov 20, 2015 8:00:00 AM / by Chris Wilmerding

Chris Wilmerding

Social_Security_Income.jpgFor many Americans, Social Security is an incredibly important part of their retirement. This program helps provide a steady source of money in retirement, helping to pay for their day-to-day living expenses.

But, how much do you know about Social Security? As much as most Americans rely on Social Security income to fund their retirement, there are a lot of things that they don’t know about the program that provides the income that fuels their retirement.

With this in mind, I thought that I’d shed some light on Social Security by making a little list of some of my favorite facts about the program and the Social Security Administration (SSA):

Fact #1: Social Security May Be Your Biggest Income Source in Retirement

In the past, I’ve written a few posts that talked about why it’s important to maxmize Social Security income and how to increase Social Security benefits. This is because Social Security is frequently the largest source of income Americans have in retirement, even those with retirement investment portfolios worth $1 million.

For example, if a married couple retired at age 66 in 2015 and one spouse collected the maximum Social Security income amount, that would be $31,956, and the other spouse could collect a spousal benefit of $15,978 for a total of $47,934 a year in income.

If that couple had an investment portfolio worth $1,000,000 and took the standard 4% withdrawal each year to pay for household expenses, that would be $40,000 year in income, $7,934 a year less than what Social Security provides.

In fact, according to the SSA’s website, “Among elderly Social Security beneficiaries, 53% of married couples and 74% of unmarried persons receive 50% or more of their income from Social Security.”

Fact #2: There are Over 70,000 Scenarios to Collect Social Security

When you total up all of the different Social Security collection strategies out there, such as using spousal benefits, deferring income collection, and the factors that influence Social Security income such as age, health, marital status, and disabilities, there are over 70,000 scenarios to collect income from Social Security.

This is why I often say that a simple online calculator is no substitute for actually consulting with a retirement planning specialist when it comes to maximizing Social Security income.

Fact #3: Social Security Income is Calculated Based on Your 35 Highest-Paying Income Years

According to the SSA’s “Your Retirement Benefit: How it’s Figured” publication, “Social Security calculates your average indexed monthly earning during the 35 years in which you earned the most.”

The more you earn on average in your 35 highest-paying years of work, the bigger your Social Security paycheck will be.

There’s a catch, though: If you didn’t earn income for at least 35 years of your life before collecting Social Security, the SSA counts those non-earning years as zeroes when calculating your average income for your Social Security retirement income.

For example, if you earned a total of $2,000,000 over 25 years of work, but didn’t earn another dime for any other year before retiring, your average income would be calculated as $57,142.85 ($2,000,000 / 35) even though your actual average earnings per year you worked would be $80,000 ($2,000,000 / 25).

Fact #4: Social Security is 80 Years Old

On August 14, 2015, Social Security turned 80 years old. To commemorate this event, the whitehouse.gov blog released a celebratory post highlighting the impact of Social Security on the American public.

Fact #5: Social Security Pays More Than Just Retirement Benefits

While most people are familiar with the retirement income benefit that Social Security provides, the program provides other benefits as well.

Examples of other benefits provided by Social Security include survivor benefits for the spouse and children of a deceased worker and income for disabled workers and their family members. There are even benefits for a divorced spouse if the marriage lasted for a minimum of ten years.

Fact #6: Over 39 Million Retired Workers Collect Social Security Income, and this Number is Expected to Grow

According to the SSA, in June of 2015, there were 39.5 million retired American workers collecting a total of $53 billion in Social Security income for that month. This doesn’t take into account the number of dependents, disabled workers, and survivors that are also collecting income under Social Security.

At this number of beneficiaries collecting income, the SSA estimates that “there are currently 2.8 workers for each Social Security beneficiary. By 2035, there will be 2.1 workers for each beneficiary.”

Fact #7: Many Retirees Don’t Get Their Maximum Benefit

Remember earlier I mentioned the $15,978 spousal benefit for Social Security income? Many retirees fail to take advantage of this and other Social Security income maximizing strategies. This means that millions of Americans aren’t getting the most out of their Social Security.

How much are American workers missing out on? According to a statistic cited by The Motley Fool, if more Americans knew about certain Social Security income tricks, “the government would have to shell out an extra $10 billion annually.”

These are just a few of the facts that many people might not know about Social Security. If you’re getting ready to retire, I would strongly recommend that you consult with a retirement planning specialist to see if they could help improve your income from Social Security.


Chris Wilmerding

Written by Chris Wilmerding

Chris Wilmerding is Principal of Thayer Partners, an independent investment management firm located in Westwood, MA providing financial planning and wealth management counsel to individuals and their families.

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