According to the Social Security Administration (SSA), one of the primary purposes of Social Security is to provide for the material needs of older people and their families.
Yet, in 2022, the average monthly Social Security benefit was only $ 1,668, far below the maximum benefit of $ 4,194. I don’t know your “material needs”, but to me $ 1,668 is just a fraction of my basic monthly expenses.
So how do you receive the maximum monthly benefit of $ 4,194, which goes way beyond providing for your needs? To answer this, you must first understand how the SSA determines your monthly benefits.
How your payment is calculated
SSA considers three factors when calculating your monthly allowance:
- The number of years you have worked.
- How much have you earned in your career.
- When you claim your benefits.
Simple enough, right? Now let’s unpack what you need to do to receive $ 4,194 per month in benefits.
1. Meet the minimum number of working years
SSA uses your top 35 years of earnings to calculate your monthly payment. If you’ve worked for less than 35 years, you can still receive benefits, but the SSA will award $ 0 to every year you haven’t worked over 35. Every 0 significantly reduces the amount you will receive in monthly benefits once you retire.
Therefore, if you wish to maximize your monthly benefits, you will need to work for a minimum of 35 years.
2. Earn at least the maximum taxable amount
You probably know all too well about the taxes that come out of your paycheck each month to fund Social Security. What you may not know is that there is a limit to how much you can be taxed for Social Security.
As of 2022, any income earned in excess of $ 147,000 for individuals is exempt from Social Security taxes.
This salary cap is also used when calculating monthly benefits once you claim them. To receive the maximum monthly retirement benefit, you will need to earn at least $ 147,000 for all 35 years.
3. Wait to claim your benefits
Finally, the last thing you need to do to maximize your benefits is to delay their application until you reach 70.
If you’ve managed to tick the first two boxes above but don’t want to wait until age 70, here’s how much you can expect to earn by making an early application or waiting until full retirement age (FRA):
62 (SS can be claimed first)
67 (FRA) *
The maximum benefit is unrealistic but not irrelevant
You may be reading this and thinking that you will never be able to maximize your monthly benefit. After all, the average annual salary in the United States today is only $ 53,490.
According to the Economic Policy Institute, only about 10% of Americans earn more than the maximum taxable amount. And doing it for 35 years would place you in a much more exclusive earning class.
The truth is, most of us will not earn the maximum social security benefit in retirement. But understanding how that impressive feat would be accomplished can help you increase your benefits.
It can push you to work harder to get that promotion or degree so that you can earn more, thereby increasing your future benefits. Or it could weigh heavily on your decision to continue working the high earning years to replace the low earning years early in your career.
The exercise in figuring out how to get the maximum monthly Social Security allowance is more about learning the formula than reaching realistic $ 4,194.
Now that you know how the SSA calculates your benefits, you can make the right career decisions to get the most out of your future Social Security income.