For many people, Social Security will play a sizable role in their retirement income. For decades, Americans pay Social Security taxes, planning on receiving monthly payouts in retirement that will either be their primary income or supplemental income to other means, such as a 401(k) plan.

Depending on factors like lifestyle and location, the maximum Social Security benefit may be enough for some to survive solely on. However, if you're planning on receiving the maximum Social Security retirement benefits, you may want to think twice.

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How Social Security benefits are calculated

Social Security defines the primary insurance amount (PIA) as the amount a person would receive if they begin receiving benefits at their full retirement age (before they round it down to the nearest whole dollar). Depending on the year you were born, your full retirement age is calculated like so.

Birth Year Full Retirement Age
1943 to 1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 or after 67

Data source: Social Security Administration.

Social Security figures out your retirement benefits by: 

  1. Figuring out your lifetime earnings.
  2. Adjusting the earnings to account for changes in average wages since the year you received the earnings.
  3. Calculating your average adjusted monthly earnings during the 35-year span where you earned the most.
  4. Applying a formula to the earnings to get your PIA.

The maximum benefit anyone can receive depends on the age they retire. If you retire at your full retirement age in 2022, the maximum monthly benefit is $3,345. If you retire at 62 in 2022, the maximum benefit is $2,364. And if you delay your benefits until 70, your maximum benefit increases to $4,194.

Unfortunately, it's unlikely that you'll qualify for full Social Security retirement benefits. As of March 2022, more than 47.6 million people are receiving benefits, and the average monthly benefit is just over $1,665 -- less than half of the maximum benefit allowed.  

What happens when you retire early?

Another reason why people may not receive not only the maximum Social Security benefit but also the maximum benefit they're eligible for is because of early retirement. You can begin receiving Social Security benefits at age 62, but you will not receive your full benefits until you reach what Social Security defines as your full retirement age.

Benefits are reduced by five-ninths of 1% for each month before your full retirement age, up to 36 months. If you retire more than 36 months before your full retirement age, any months exceeding 36 will be further reduced by five-twelfths of 1% each month.

If you retire at 62, here's how much you can expect your benefits to be reduced by the time you reach your full retirement age.

Birth Year Months Until Full Retirement Age Benefit Reduction
1943 to 1954 48 25%
1955 50 25.83%
1956 52 26.67%
1957 54 27.50%
1958 56 28.33%
1959 58 29.17%
1960 or after 60 30%

Data source: Social Security Administration.

Use the different retirement accounts available

Many people will need to rely on more than one means to live the life they envision in retirement -- and that's perfectly fine; that's what they're for. One of the best ways to ensure you're financially comfortable in retirement is to take advantage of the different retirement accounts available to you.

If your job offers a 401(k) plan, be sure to take advantage of it (especially if there's an employer match). But, it would help if you also looked into utilizing other accounts, like a Roth IRA or traditional IRA. The tax advantages of those accounts can not only pay off in the short term, but you'll be thanking yourself later and glad you utilized them in retirement.