Whether you are aware of it or not, there is a good chance that you are leaning up Social Security to some extent during retirement to make ends meet.
Recently, the national poll Gallup published its annual survey, which examined the dependence of non-retirees and retirees on America’s best social program. In 2022, a total of 85% of non-pensioners were of the belief that they would lean on social security as either a major or minor source of income during retirement. Meanwhile, 89% of the current surveyed pensioners are dependent on the income they receive from social security in a certain capacity each month.
In other words, what you get paid on a monthly basis in your golden years matters. But where you live can also mean something.
Before you dive into the small, rough states that boast the highest social security payments each month, it is important to have a good understanding of how your monthly benefit is calculated.
A review of how your social security benefit is calculated
Even though there are over half a dozen factors which can affect what you want to take home and / or keep from Social Security as a retired worker, there are four essential components that determine how much you get paid each month.
The first two, your work history and earnings history, are tied at the hip. The Social Security Administration takes your 35 highest-earning, inflation-adjusted years into account when calculating your monthly retirement benefit. This means that it is not only important for you to earn as much as you can in the years you work (up to the maximum taxable earnings ceiling, which is $ 147,000 in 2022), but you also want to generate working income for at least 35 years to maximize your retirement benefit.
The third component is yours full retirement age. This is the age at which a beneficiary becomes entitled to collect 100% of their monthly pension benefit. For persons born in 1960 and later, the full retirement age is 67 years.
The fourth key factor that determines your monthly benefit is your alleged age. Eligible beneficiaries have the option to start taking their payout before or after their full retirement age, which may reduce (when taken before) or increase (when taken after) their monthly benefit. Depending on your year of birth, this reduction can be as high as 30% per month, and the increase can be as much as 32%.
These 10 states have the highest monthly social security payments
Now that you have a solid understanding of the factors that determine your monthly social security benefit, we can dig into why certain states have higher average monthly payments.
To determine which states can boast the highest average monthly retired employee benefit, I turned to Social Security’s Supplemental Data Release for 2021. geographical data section (Tables 5.J1 and 5.J2, link opens a new window) provides tables showing how much was paid by the program to retired workers in each state in 2020, as well as how many retired workers there were in those states, from December 2020. The division of the former into the latter gives an average annual payment per. retired worker for each state. This annual figure is then divided by 12 to obtain an average monthly benefit.
But the work is not quite finished yet. I also added 1.3% adjustment of cost of living (COLA) to this average monthly benefit for 2021, as well as a COLA of 5.9% for 2022.
The end result is that retired workers in the following 10 states collect the highest average monthly social security payments in the country.
- New Jersey: $ 1,768.61 / month
- Connecticut: $ 1,757.00
- Delaware: $ 1,704.26
- New Hampshire: $ 1,700.75
- Maryland: $ 1,689.86
- Michigan: $ 1,682.68
- Washington: $ 1,672.05
- Minnesota: $ 1,656.27
- Massachusetts: $ 1,654.24
- New York: $ 1,654.14
Why these states?
Now to the $ 64,000 question: Why these 10 states?
That most logical explanation has to do with income. Beneficiaries should receive a larger pension payment if they consistently earn more than the national average. This means that states with high-paying jobs, thriving industries and above-average median household incomes should help workers receive a larger pension benefit.
Based on income data from 2019 via the U.S. Census Bureau, Maryland, Massachusetts, New Jersey, Connecticut, Washington and New Hampshire were six of the top eight states in terms of median household income. To be clear, moving to a state with a higher median household income does not mean that your social security benefit will increase. But the data is pretty clear that a majority of these 10 states offer higher income opportunities for workers, which can help increase social security benefits paid during retirement.
There are other factors at work as well. Unfortunately, this is where we move beyond concrete data and push into a bit of guesswork and hypotheses.
For example, Michigan is a bit of an anomaly on the income front. Based on median household income, Wolverine State ranks 33rd and is remarkably below the national average. However, Michigan also offers the seventh lowest cost of living in the United States. High-income people are likely to move to Michigan to retire to allow their dollars to stretch further. This would certainly explain why Michigan has the sixth highest average monthly payout in the country among retired workers.
Another possible reason why these 10 states stand head and shoulders above the others is the age of their retired workers. If wages and salaries are consistently higher in most of these states, workers may have a better chance of saving and investing for their future. This may mean less need to take social security income early retirement (i.e., being forced to take a permanent benefit reduction). Being able to wait until full retirement age, or perhaps even up to 70 years, could lift the average monthly payout in these states.