According to the Social Security Administration (SSA), one of the primary goals of Social Security is to meet the material needs of elderly individuals and their families.
But in 2022, the average monthly Social Security benefit was just $1,668, well below the maximum benefit of $4,194. I don’t know what your “material needs” are, but to me $1,668 is just a fraction of my basic monthly expenses.
So, how do you get the maximum monthly benefit of $4,194, which goes way beyond meeting your needs? To answer that, you must first understand how the SSA determines your monthly benefits.
How your payment is calculated
The SSA takes into account three factors when calculating your monthly benefit:
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- The number of years you have worked.
- How much you have earned in your career.
- When you apply for your benefit.
Pretty simple, 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
The SSA uses your 35 highest earning years to calculate your monthly payment. If you have worked for less than 35 years, you can still receive benefits, but the SSA will allocate $0 for each year you have not worked for 35 years. Each 0 significantly reduces how much you receive in monthly benefits once you retire.
So if you have aspirations to maximize your monthly benefits, you must work for at least 35 years.
2. Earn at least the taxable maximum
You are probably all too familiar with 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 over $147,000 for individuals is exempt from Social Security taxes.
This pay cap is also used when calculating your monthly benefits once you claim them. To receive the maximum monthly retirement benefit, you must earn at least $147,000 over all 35 years.
3. Wait to claim your benefits
Finally, the last thing you need to do to maximize your benefits is delay claiming them until you reach age 70.
If you’ve managed to tick the first two boxes above, but don’t want to wait until age 70, you can expect the following by either claiming earlier or waiting until full retirement age (FRA):
62 (earliest you can claim SS)
67 (FRA) *
The maximum benefit is unrealistic but not unimportant
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 US today is just $53,490.
According to the Economic Policy Institute, only about 10% of Americans earn more than the taxable maximum. And to do that for 35 years would put you in a much more exclusive class of earners.
The sober truth is that most of us will not earn the maximum Social Security benefit in retirement. But understanding how one would achieve that impressive feat can increase your benefits.
It can push you to work harder to get that promotion or degree so you can earn more, increasing your future benefits. Or it could weigh heavily on your decision to continue working in your highest-earning years to replace the least-earning years at the start of your career.
The exercise in understanding how to reach Social Security’s maximum monthly check is more about learning the formula than realistically hitting the $4,194.
Now that you know how the SSA calculates your benefits, you can make the right career decisions to make the most of your future Social Security income.
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