Inflation is ticking higher, and as a result, the Social Security Administration increased Social Security payments by 0.3% in 2017. The slight increase in Social Security income means that the maximum monthly Social Security benefit at full retirement age will be $2,687 per month in 2017; however, the chance that someone gets that amount depends entirely on their past earnings and when they claim their Social Security benefits.
Here's how the government decides how much you'll receive in Social Security benefits -- and what you can do to boost your take.
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How is my Social Security calculated?
It takes most Americans about 10 years of working to accumulate enough Social Security credits (40) to qualify for Social Security benefits. If you qualify for Social Security, then the Social Security Administration will calculate your monthly benefit by adjusting your income -- up to specific limits -- into current dollars. Your highest 35 years of adjusted income are then totaled and divided by 420 (the number of months in 35 years) to arrive at your average indexed monthly earnings (AIME).
Your AIME is then adjusted by multipliers at specific earnings thresholds to determine your maximum monthly Social Security benefit at full retirement age, or FRA. For instance, if you become eligible for Social Security in 2017, then you'd multiply the first $885 in AIME by 90%. Any amount earned between $885 and $5,336 would be multiplied by 32%, and any amount above $5,336 would be multiplied by 15%. The resulting amounts are added together and rounded down to the nearest dime to determine your monthly FRA benefit.
Although this calculation is complicated, you don't need to run the numbers yourself to find out how much you'll get in benefits. The Social Security Administration provides two ways for you to learn how much you're likely to receive in monthly benefits. You can either use their calculator to estimate your benefit or you can set up an account so that you can log in to view your projected benefit.
Overall, Social Security is designed to replace roughly 40% of the average American worker's pre-retirement income; however, as the following chart shows, the amount Americans receive in benefits varies widely.
Data: Social Security Administration. Author's chart.
How to get a bigger Social Security check
Obviously, the best way to get more Social Security in retirement is to earn more money. Workers pay a payroll tax that applies to income earned up to $127,200 in 2017 (up from $118,500 in 2016), so if you earn less than that, increasing earnings can net you a bigger Social Security check in the future. Also, if you've already worked 35 years, know that higher-income earning years will replace lower-income earning years in your benefit calculation, further boosting your benefit.
You can also increase your Social Security income by taking advantage of delayed retirement credits. Delayed retirement credits increase your Social Security payment by a fixed percentage for every month you delay claiming beyond your full retirement age. In 2017, the full retirement age is 66 years and 2 months, so if you were born in 1955, and you wait until age 70 to claim your benefits, then your monthly check will be 130-2/3% of the amount you would've gotten at full retirement age.
If you're scheduled to receive the maximum Social Security benefit this year, delayed retirement credits still apply. So, if, for instance, you decide to retire at 70 instead of 66 and 2 months, then you could receive a maximum monthly benefit of $3,538.
Overall, deciding when to claim Social Security is a personal decision that depends on your health, savings, retirement goals, and family wishes, as well as other things. That being said, waiting to claim your benefits could be your best strategy for maximizing your Social Security benefit.
