In less than a week, Social Security will hit a major milestone: its 85th anniversary since it was signed into law.
Since its inception, Social Security has been responsible for providing a financial base for tens of millions of retired workers, and currently pulls a third of its pensions out of poverty each year. Last year, the program paid nearly $ 1.05 trillion in planned benefits, most of which made its way into the hands of retired workers.
However, social security benefits are not one-size-fits-all for retirees. Where you can live can make a big difference in terms of what you will be paid each month. In particular, retired workers in five states are currently earning at least $ 121 a month more than the average retiree from workforce networks in the United States.
But before I dive into the five states where Social Security retirement benefits are highest, I believe it makes sense to first understand how those monthly benefits are calculated.
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Here’s how your monthly Social Security benefit is calculated
While there are more than half a dozen factors that can influence what a retired worker brings home or gets to keep from Social Security, there are four that stand head and shoulders above the rest.
The first two, work history and history of earnings, are inextricably linked. The Social Security Administration will earn a workers ’35 years with maximum, inflation-adjusted years into account when calculating their monthly benefit on full retirement year. Thus, maximizing your benefit is not only earning as much as you can in the years you work (up to the maximum taxable income cap, which is $ 137,700 by 2020), but also working a minimum of 35 years.
The third factor is your full retirement year, or the age at which you are eligible to receive 100% of your monthly payment, determined by your year of birth. For baby boomers and the vast majority of future retirees, your full retirement age is 66, 67, or somewhere in between. The point is that claiming your benefit before reaching your full retirement age will result in a permanent reduction in your monthly payout, while waiting for your payout to take over until after your full retirement age can increase your monthly benefit above 100%.
Fourth and lastly, there is your assertive age. If you really start taking advantage of it, it will determine whether your payout will be reduced by as much as 30% per month or raised by as much as 32%. All of these factors play a role in determining a monthly benefit of Retired Social Security workers.
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Payouts for social security in these states are much higher than the national average
In early 2020, the average retired worker in the U.S. saw its monthly payout cross above $ 1500 for the first time in history. This average monthly payment of $ 1,503 reflects the adjustment of the cost of living to 1.6% passed on to Social Security beneficiaries when the year began.
But in five states, retired workers bring home a little more bacon – between $ 121 and $ 186 more per month than the national average, to be exact:
- New Jersey: $ 1,689 per month
- Connecticut: $ 1,685
- Delaware: $ 1,659
- New Hampshire: $ 1,644
- Maryland: $ 1,624
Now, before you start calling moving companies and asking for the best rate, let me assure you that moving to these states does not guarantee you the highest possible payout of Social Security. Instead, there are other factors that are likely to have played a role in pushing pension benefits for these five states well above the national average.
Income, for example, plays a major role. Maryland, New Jersey, Connecticut, New Hampshire, and Delaware rank no. 1, 2, 6, 7 and 14 in terms of median household income in 2020. States where workers consistently generate higher annual wages and salaries than the national average should rightly be expected to receive a higher monthly benefit during retirement.
For some states, such as Maryland, proximity to skilled employment plays an important role. The neighborhood of Maryland to Washington. DC, and the jobs within and around the DC area, are a major reason that its residents make a lot of money. For other states, such as New Jersey and Connecticut, their tie-ins to the financial sector and the financial district of New York have likely raised household income.
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But it is not just income that is likely to be responsible for the difference in monthly benefits. The average age of retirees in these five states may well be higher.
You have to keep in mind that this is mere speculation on my part, because statistics of the age of claims at the state level are difficult to come by. However, with workers in these states earning more than the national average on an annual basis, they may be less likely to depend on Social Security income during retirement (meaning they are more likely to have saved and invested for their future given their higher income). This would suggest that higher income workers could wait longer to take their Social Security Payout, which in this case would inflate their eventual monthly benefit and the average benefit of retired workers in a particular state.
Another possible reason these five states come out could be because of retired workers moving in or out of them over time. Retirees are moving for a variety of reasons, including being closer to family and friends, enjoying better weather, accessing better health care services, and even avoiding higher living costs. Over a long period of time, these factors can affect the average benefit received by retired workers in a state.
Again, moving to these five states will not guarantee you a higher benefit of Social Security. But there appear to be a handful of factors that give working Americans the opportunity to earn a larger monthly payout in these states.
