More Abuse of Social Security Statistics...

Making reference to the average Social Security benefit is an often used - and misused - characterization that won't go away.  Chuck Saletta of the Motley Fool writes the following at MSNBC.com:

The average Social Security payment to a retired worker currently sits around $1,234 per month -- or about $14,808 per year. For comparison, a full-time minimum wage job would currently pay $7.25 per hour -- or around $14,500 per year.

From there he goes on to argue that with such a low average benefit, the importance of savings to augment the benefit is all the more important.  Fair enough.  I am all for more savings for retirement.  However, for those nearing retirement there is limited time for the magic of compound earnings to pump up their savings.  By contrast, there is a sure-fire way to increase your guaranteed Social Security benefits: find a way to claim later!

Let's unpack the loaded 'average benefit around $1,234 per month'.  More than half of claimants start benefits at 62, the earliest possible age.  Most of the rest start within a couple more years, long before the latest claiming age of 70.  Let's suppose this $1,234 is typical of people claiming at 62 (and it is if you have a look at this data from the Social Security Administration, p. 352).  That benefit is reduced about 25% from what it would have been at age 66, Full Retirement Age currently.  If the same person waited to that age to start, the benefit would be $1,542, an amount that would be typical of an earner who made about $44,000 a year during their working career.  If the worker waits to age 70 to start, the benefit is 32% higher, or $2,035.  Now, suppose a married couple both earned that amount and are entitled to the same benefit.  Claiming at 70 their income would be $4,070 or $48,840 per year.  Harly makes them wealthy, though there are places you can live on that kind of income, especially since it would be tax free if you have little other income.  Of course, you need to get to age 70...

Social Security rules give this couple a little help to get there.  At age 66 the younger spouse can file a "spousal" claim based on the other spouse's work record and receive 50% of what that other spouse was entitled to receive at age 66 (even though both are waiting to age 70 to claim on their work records).  That's 50% of $1,542, or $762 for 48 months: an extra $36,576!  Waiting has its own reward!