Most retirees plan to collect Social Security at some point. For people whose retirement is still a ways off, you may wonder what an average Social Security payment will look like in 15 years when you’re finally ready to retire or close to retirement.
To figure this out requires a little bit more than straightforward math, according to Martha Shedden, a CFP and president and co-founder of the National Association of Register Social Security Analysts.
According to Shedden, the current average Social Security benefits is around $1,900 monthly. No one can precisely predict what the economy will look like in 15 years or whether inflation will stay steady, but with the help of calculating software, they can make an educated guess.
“If you assume an inflation rate of 2.25%, the average benefit would be around $2,663 in 15 years,” Shedden said. “However, given the historical cost of living adjustments (COLAs) over the past 20 years of 2.6%, the average benefit amount in 15 years will actually be closer to $2,802.”
In reality, to the person collecting it in 15 years, Shedden said it would still feel like $1,907 today in their budget.
Don’t Underestimate Your Benefits
While you might think that people overestimate what they’ll receive, Shedden said it’s more common for people to actually underestimate how much Social Security they’re potentially going to collect. Even she and her husband were surprised to learn that together they were eligible for almost $90,000 yearly.
“The lifetime total cumulative amounts for some high-earner couples who have earned the maximum amount every year is in the millions,” Sheeden said.
The Point of Social Security
However, the point of Social Security isn’t to bring in millions, Shedden said,. It was set up as a program to keep people out of poverty.
For folks with lower incomes, it’s often a greater percentage of their total retirement assets, sometimes between 50% and 90% of what they will retire on.
“It’s important for lower-income individuals to be educated and understand exactly what that amount will be,” Shedden said. “Because, for every month and every year that they can delay collecting, that amount is going to go up.”
That increased amount is subject to the cost-of-living adjustments for the rest of their lives.
For people living at the poverty line, there is also supplemental security income (SSI).
“That’s not really a substantial amount,” Shedden said, “but it’s definitely a critical part of many Americans’ retirement.”
Prepare for Social Security Reductions
There is, however, a great unknown about the fate of Social Security. According to Brian Kuhn, CFP and senior vice president at Wealth Enhancement Group,”If we consider the Social Security Administration’s predictions that benefits would need to be reduced by 23% around 2033 to maintain program stability without legislative intervention, the average benefit would decrease to about $2,182.”
It’s important to remember that these benefits are only averages, and not every individual’s benefits are the same.
It’s also important to do whatever is in your power to not just rely on Social Security in retirement.
Start Retirement Planning Early
“It’s never too early to start planning for retirement,” Shedden said. “It can’t be overstated how important it is to start the savings habit early and watch it grow.”
The more options you give yourself, the better.
As Shedden pointed out, “Social Security is only one piece of retirement income and was never meant to replace 100% of pre-retirement earnings.”
Pay Yourself First
If your are planning for retirement in your 40s or younger, save as much as possible by “paying yourself first,” Shedden insisted. “Have a certain percentage of each paycheck go into a savings or investment account.”
Get That Free Money
Also, always take advantage of employer-based retirement accounts to receive the “free” employer match and the extended years of compounding on these investments, Shedden urged.
For Later Planners
If you’re planning in your 50s and older, keep saving and growing your nest egg, but also start the process of comprehensive retirement financial planning, Shedden said.
Make sure you’re thinking about which other sources of dependable, guaranteed income you will have besides Social Security to maintain the lifestyle you have in mind.
With these strategies in mind, no matter what you’re expecting to receive from Social Security in 15 or more years, you’ll be able to retire comfortably.
