It was never intended to serve as an individual's chief source of retirement income, but for most investors, Social Security will play a big part in funding their golden years. It only makes sense to maximize the benefit to the fullest extent possible, which for some workers can be surprisingly significant. In 2022, a handful of Social Security check recipients will be collecting the maximum possible payment of $4,194 per month.
If you plan on starting your Social Security benefits this year, are you eligible for this amount? Here's who will be able to claim this level of benefit in 2022.
You were earning at least $42,000 per year by 1986
It's an often-unrealized detail, since most workers don't earn enough to max out their yearly FICA (Federal Insurance Contributions Act) contributions. But not all of your income is taxed by the Social Security Administration for the purpose of building up your benefit base.
In 1986, only the first $42,000 of your earnings was taxed for FICA purposes. Every dollar earned beyond that figure may have been taxed heavily due to the federal government's progressive tax rate schedule. None of that additional tax was put into the SSA's funding pool, however.
You've earned progressively more in each of the past 35 years
The year 1986 wasn't pulled out of a hat. That's 35 years ago -- the maximum number of years the Social Security Administration will count toward your retirement benefit.
Actually, if for some reason you took a break from work in a few of those years, that's OK. The Social Security Administration ultimately only cares that you earned at least its maximum taxable income for a total of 35 years. Better still: If you happened to work more than 35 years, the agency will use your highest-earning 35 years to figure out your monthly benefit.
Unfortunately, even though you were paying FICA taxes every year you worked, simply working more than 35 years doesn't boost your monthly check.
You're earning $147,000 per year now
So how "progressive" do your 35 years' worth of annual raises need to have been to secure a monthly benefit of $4,194 in 2022? For perspective, this year's maximum taxable earnings (for Social Security purposes) is $147,000 per year; last year's cap was $142,800. If you need a little help figuring out where FICA withdrawals stopped being taken out in the meantime, 1998's maximum taxable income was $68,400. In 2010, SSA stopped taking money out for any wages above and beyond $106,800.
In other words, you'd need to be earning roughly twice the average worker's wages in at least 35 of your working years to be eligible for the maximum possible benefit now.
You'll turn 70 before you start receiving monthly benefits
Finally -- and perhaps most important -- only individuals who are 70 years of age (or older) when they begin collecting their monthly Social Security payments this year will see checks of $4,194.
You can start accepting benefits when you're as young as 62, but even if you've met all of the above criteria, your checks will still only be worth $2,364. Retiring at a more typical 65 years of ago would cap your 2022 monthly payment at $3,240, assuming you earned the maximum taxable income for at least 35 years.
For the record, you aren't required to start collecting Social Security checks simply because you retired. You can delay them if you choose, if you're in a financial position to do so, but most people just aren't. Also know that delaying benefits beyond the age of 70 in no way improves the size of your checks once you do start to collect them.
These numbers only paint a picture with broad brush strokes, as everybody's situation is a little different, even to the Social Security Administration.
The good news is, the agency is able to provide you with a rather detailed picture of where you stand right now, and how big your checks will likely be once you're ready to claim your benefits. You can talk to a live SSA representative in an office or by phone, though you can also view your more detailed personal report online.
No matter how you choose to do it, gathering this sort of essential information is an important part of any retirement planning.