The Important Thing to Remember About Social Security's Average Retirement Benefit

Stock SectorJune 6, 20188min4
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<div><p><a href="https://finance.yahoo.com/news/important-thing-remember-social-security-112100976.html"><img src="http://l2.yimg.com/uu/api/res/1.2/HAsnuBdDvWSe8GJThqPLFQ--/YXBwaWQ9eXRhY2h5b247aD04Njt3PTEzMDs-/http://media.zenfs.com/en-US/homerun/motleyfool.com/8dfe22b15491e508a92dcd8ed606d9d4" width="130" height="86" alt="The Important Thing to Remember About Social Security's Average Retirement Benefit" align="left" title="The Important Thing to Remember About Social Security's Average Retirement Benefit" border="0"></a>Don't take your focus off of the variables that matter to you.</p><p><br></p></div>

Your claiming age is pretty important, too. Retired workers have the option of claiming Social Security benefits at age 62 or any point thereafter. However, the SSA dangles a pretty big carrot to entice eligible retired workers to hold off on enrolling. Beginning at age 62 and ending at age 70, your benefit will grow by approximately 8% for each year you remain on the sidelines. Thus, all things being equal, you could net up to 76% more on a monthly basis by claiming benefits at age 70 as opposed to age 62.

Understandably, claiming later in life doesn’t make sense for everyone. But if your goal is to maximize your lifetime benefits and that happens to coincide with maxing out your monthly benefits, too, then waiting to claim benefits could make sense.

A Social Security card wedged in between IRS tax form 1040 pages, next to a pair of reading glasses and a twenty-dollar bill.A Social Security card wedged in between IRS tax form 1040 pages, next to a pair of reading glasses and a twenty-dollar bill.

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A Social Security card wedged in between IRS tax form 1040 pages, next to a pair of reading glasses and a twenty-dollar bill.

Image source: Getty Images.

Don’t forget about these variables, either

Of course, there’s a bit more to it than simply earning a lot, working for at least 35 years, and claiming benefits at a specific age of your choosing.

As an example, your adjusted gross income could impact what you’ll get to keep of your Social Security benefit. In 1983, the federal government signed into law a series of amendments, one of which established the federal taxation of Social Security benefits. Should the total of one-half of your Social Security income plus your earned income exceed $25,000 for individuals or $32,000 for couples filing jointly, half of your Social Security income becomes taxable at the federal level. A second-tier for individual taxpayers earnings more than $34,000 and couples above $44,000 was added in 1993 that allows the federal government to tax up to 85% of Social Security benefits at the ordinary income-tax rate.

Similarly, 13 states tax Social Security benefits in some capacity. This means you could live in 37 states and earn as much as you want without the fear of paying state tax on your Social Security benefits. But in 13 states, your benefit may not stretch as far.

Location also can be an important variable that extends or narrows the life of your Social Security benefit — especially if you’re heavily reliant on the program. States with a considerably lower cost of living could allow a retired worker who’s earning much less than the national average retirement benefit to live comfortably. Meanwhile, a retiree in California or New York, which are known for their higher cost-of-living standards, could struggle to get by, even with a considerably higher retirement benefit.

Ultimately, averages don’t matter. The only thing that matters are the variables important to you and your Social Security benefit.

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