(Matthew Frankel, CFP®)
The maximum possible Social Security benefit in 2022 is $4,194 per month, or $50,328 for the year. While this may sound like an excellent stream of inflation-protected retirement income, the reality is that very few Americans qualify for checks that large from the government program.
With that in mind, here’s a rundown of the three criteria that a person must meet in order to receive the maximum Social Security retirement benefit possible, how much the average American really gets, and how you can use this knowledge to maximize your own Social Security benefits.
How to get the maximum Social Security benefit
For a person to get the maximum possible Social Security retirement benefit, all of these things must be true:
- You worked for at least 35 years in Social Security-covered employment. Unlike many pension plans, which calculate your benefit based on your last few years of work, Social Security takes your 35 highest-paid inflation-adjusted years into account and averages them together. If you have fewer than 35 years of work experience, zeros will be used in the calculation for the missing years.
- You earned at least the maximum income that is subject to the Social Security wage tax in all 35 of your highest-earning years. For 2022, that threshold is $147,000, and it has increased with inflation over the years. Your highest 35 years are indexed for inflation and averaged to compute your average indexed monthly earnings. So, in order to max out the average, it needs to be as high as possible for all 35 years being considered. Fortunately, many people will work for significantly more than 35 years total. Doing that gives you a tiny bit of wiggle room, allowing you to drop some lower-earning years from your benefit calculation.
- You must wait until you turn 70 to start collecting benefits. Even for high earners, this is typically a limiting factor. For every year you wait beyond your full retirement age (until you hit 70), your monthly Social Security benefit will be permanently increased by 8%.
As you might imagine, few retirees meet all three of these criteria. Most have at least 35 years of work experience. But the other two are far less common.
- In any given year, about 6% of workers earn more than the maximum income that is subject to the Social Security wage tax. Far fewer have earnings that exceed that level in all of their 35 highest-earning years.
- Only 5% of men and 7% of women wait until they turn 70 to claim their benefit. In fact, the most common age for Americans to file for Social Security is 62 — the youngest age at which they are eligible to do so.
How much will you get from Social Security?
As of March 2022, the average Social Security retirement benefit was $1,665 per month — far below the maximum. The program is designed to provide a benefit that replaces about 40% of the typical American’s pre-retirement income. It’s not intended to be sufficient as a person’s sole source of cash in retirement.
The best place to get a personalized estimate of your future benefit is to log in to your “my Social Security” account (and if you haven’t yet created one, you should) and view your most recent statement. Among other information, it will include an estimate of how big your benefit will be at full retirement age, as well as estimates for what you would receive if you claimed Social Security early or late, based on your current work record.
How to maximize your own Social Security benefit
The bottom line is that although most retirees won’t qualify for the maximum Social Security benefit, understanding how the benefit is determined puts you in a better position to maximize yours to the degree that it’s possible. For example, if you’ve only worked for 34 years and are considering retiring, it could be worthwhile to stay at your job for another year in order to prevent a zero from being used when calculating your lifetime average. Or if you’re thinking of claiming Social Security at 65, waiting until your full retirement age could increase your monthly checks by hundreds of dollars.
Social Security is the only inflation-protected income stream that the majority of retirees will have, so it’s smart to figure out how much you can expect from it, and to take steps to increase that benefit if you think you’d appreciate a little more reliable income after you retire.
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