The amount you receive in Social Security payments could have a significant impact on your overall quality of life and ability to enjoy your retirement years. There are multiple factors that affect your benefits, and it can pay off in a big way to have a good understanding of what affects the distribution amount and what you can do to shape that total. Knowing what these factors are now can help set your expectations for retirement.
For instance, with a relatively simple step, a select set of the U.S. population can add an extra $1,830 to their monthly Social Security payment -- provided they meet the income requirements. Following through on the step could be the difference between a monthly payment of $2,364 and a payment of $4,194 per month. Here's how to make it happen.
Image source: Getty Images.
Meeting the income requirement
The first component to earning an extra $1,830 in monthly Social Security income is to be in the top income bracket for the entire calculation period. The Social Security Administration (SSA) calculates your benefit based on your average indexed monthly earnings (AIME) over your top 35 years of inflation-adjusted earnings. For 2022, landing in the maximum taxable income bracket needed to max your monthly benefit means having inflation-adjusted annual earnings of at least $147,000 over the calculation period.
Granted, hitting the top income bracket for calculating Social Security is something that relatively few people will achieve. The Social Security Administration estimates that just 6% of eligible Americans met the threshold for maximum taxable income across the stretch needed to qualify for maximum potential benefit. The next step involves patience.
Delay taking Social Security benefits
If you've met the maximum taxable income amount over the calculation period, the second component to earning the maximum distribution involves delaying the start of your benefits past your initial point of eligibility, past your full retirement age (FRA) designation (it varies), and waiting until age 70. In 2022, the current minimum retirement age for Social Security is 62, and the maximum monthly benefit you can receive if you retire and begin taking benefits at that age is $2,364.
This chart outlines when you will reach FRA based on birth year and how much your benefit would be reduced if you were to begin taking Social Security payments at 62 rather than at FRA.
| Birth Year | Full Retirement Age | Percent Retirement Benefit Is Reduced By If Benefits Taken at 62 Rather Than at FRA |
|---|---|---|
| 1943-1954 | 66 | 25% |
| 1955 | 66 and two months | 25.83% |
| 1956 | 66 and four months | 26.67% |
| 1957 | 66 and six months | 27.5% |
| 1958 | 66 and eight months | 28.33% |
| 1959 | 66 and 10 months | 29.17% |
| 1960 and later | 67 | 30% |
Data source: Social Security Administration.
For people who reach FRA in 2022 and decide to take benefits this year, the maximum Social Security distribution is $3,345 per month. But it's possible to increase that amount by postponing receiving benefits. Your monthly benefit will increase slightly each month that you delay taking Social Security past FRA.
This chart outlines what the increases look like as a percentage on a quarterly basis.
Data source: Social Security Administration.
Delaying your initial Social Security claim to age 70 means that you will get an additional 8% increased benefit for each year that you postpone claiming past full retirement age. If your FRA is 66, delaying your Social Security benefit until the age of 70 could result in your benefit increasing by 32%, no matter what your base salary was. For that select group with an FRA of 66 who met the maximum taxable income amount across the AIME calculation period, postponing benefits to age 70 will increase their monthly benefit by $1,830 and allow them to reach the maximum benefit of $4,194 per month.
Think this doesn't apply to you?
For the 94% of us who haven't maxed out the Social Security income requirements, the rules about delaying benefits for increased payouts still apply, and you can increase your payout too. So don't be disheartened if this scenario doesn't describe your situation exactly and you aren't one of those in line for a $1,830-a-month boost. You can max out whatever your benefits will be in the same way by waiting till age 70 to apply. Investigate what your benefits will be and see how much better you could do by delaying the start of benefits beyond FRA.
