For better or worse, Social Security is our country's most important social program, at least when it comes to providing a financial foundation for our retired workers, the long-term disabled, and the survivors of deceased workers. The Center on Budget and Policy Priorities found in 2016 that the mere existence of Social Security, and the guarantee of a monthly benefit to tens of millions of beneficiaries, ensures that 22.1 million are kept out of poverty.
The importance of Social Security is reflected in the extent to which retired workers lean on the program. Data from the Social Security Administration (SSA) finds that 62% of the more than 42.8 million retired workers receiving a benefit are counting on their payout to account for at least half of their income. Furthermore, 34% of these 42.8 million essentially count on Social Security to provide most or all (90% to 100%) of their retirement income.
Yet the interesting thing about retirement benefits from Social Security is that they aren't all that high on a nominal basis. The program isn't designed to make seniors rich. In fact, there's a monthly maximum benefit of $2,788 at full retirement age, as of 2018.
Instead, the SSA guides retirees to expect the program to replace an average of 40% of their working wages, with this percentage perhaps a bit higher for lower-income workers, and a lower for workers with higher lifetime earnings. As of March 2018, SSA data shows that the average retirement benefit was $1,409.91 a month, or about $16,919 a year. Though this average benefit is above the federal poverty level for a single taxpayer of $12,140, it doesn't exceed it by much.
But when examined on a state-by-state basis, some of the 50 states offer a considerably higher average monthly Social Security retirement benefit. According to data released by the SSA in April 2018, the following 10 currently sport the highest average monthly retirement payout:
As a whole, 22 of the 50 states have an average benefit that's higher the $1,409.91 national average payout. But these 10 states stand out as being far above the curve, with Delaware, Connecticut, and New Jersey being the only three states with an average retirement benefit in excess of $1,500 a month. The average New Jersey retiree is taking home $1,725 extra per year over the national average, and just over $2,900 more a year than the average retired worker in Louisiana, which ranked dead last among the 50 states ($1,311.72 a month).
Why such a variance in average retirement benefits from Social Security? Let's take a look at a few of the variables that could be affecting these results.
Lifetime earnings is probably the single greatest differentiating factor on this list. Based on 2015 median household income data from the U.S. Census Bureau, Maryland, New Jersey, Connecticut, New Hampshire, Washington, and Minnesota ranked first, fourth, fifth, seventh, 10th, and 12th, respectively. While there are seven factors that can directly or indirectly impact your Social Security retirement benefit, the SSA takes your 35 highest-earning, inflation-adjusted years into account when calculating your eventual payout. If folks in these states are earning more than the national average, we should expect them to have a higher monthly benefit when they retire.
It could be argued that cost of living might be coming into play with these results, too. For example, neither Michigan nor Indiana rank particularly high on the median household income list of all 50 states. But what they do offer is a below-average living expense. The 2015 Regional Price Parity Index from the U.S. Bureau of Economic Analysis finds that Michigan and Indiana have respective readings of 93.5 and 90.7. With regional price parity equating to 100, this suggests that these states offer reasonably lower costs of living (i.e., housing, food, and so on) than the national average. For a retiree that's heavily reliant on Social Security income, it could allow those dollars to stretch even further.
There are two other factors that might play a role, here, but there's no way to quantify to what extent they've helped shaped the results above.
The first of those would be the desire of workers to move to a new state when they retire. As noted, Michigan and Indiana may be benefiting from an influx of seniors looking to take advantage of lower-than-average expenses. But there are other factors that go into choosing a retirement destination beyond just cost of living, including climate, crime rates, access to healthcare, and proximity to friends and family, to name a few.
The other wild card is the claiming age of retired workers. Social Security benefits can begin at age 62, or any point thereafter. However, the SSA has a pretty tempting dangling carrot of sorts for those who choose to wait to claim their payout. For each a year an eligible beneficiary holds off on taking their payout, their benefit grows by approximately 8%, up until age 70. Though data as of 2013 showed that around 60% of retirees enroll between ages 62 and 64, resulting in a permanently reduced payout, this average claiming age might vary notably across the country, impacting the average benefit of retirees by state.
Long story short: Moving to New Jersey doesn't necessarily mean you'll be sitting pretty when claiming Social Security benefits. However, having a well-paying job and waiting a while after you're eligible to sign up for benefits may do the trick.