The wealthiest Social Security beneficiaries can expect $4,194 a month -- or over $50,000 this year -- from the program, but obtaining a benefit this size is no easy feat. Patience and a high income are key, and so is understanding how the government calculates your benefit in the first place. If you want to squeeze the most money possible out of Social Security, here's what you need to know.
Here's how the government calculates your Social Security benefit
The first step in calculating your Social Security benefit is to figure out your average indexed monthly earnings (AIME). The government does this by totaling up your earnings over your 35 highest-earning years, adjusted for inflation, and dividing by 420 -- the number of months in 35 years. For example, if you earned $50,000, adjusted for inflation, every year for 35 years, your AIME would be $4,167.
Next, the Social Security Administration plugs your AIME into a formula to determine your primary insurance amount (PIA). For those turning 62 in 2022, the PIA formula looks like this:
- Multiply the first $1,024 of your AIME by 90%.
- Multiply any amount over $1,024 up to $6,172 by 32%.
- Multiply any amount over $6,172 by 15%.
- Add your results from Steps 1 to 3 and round down to the nearest dollar.
In the above example, $1,024 and $6,172 are known as the bend points. These change every year, and the ones you'll use depends on the formula in place in the year you turn 62.
Your PIA tells you how much you'll get if you claim Social Security at your full retirement age (FRA). That's somewhere between 66 and 67, depending on your birth year. But a lot of people don't claim then. For those who begin earlier or later, the government runs their PIA through another calculation to determine their final benefit amount.
Starting benefits before your FRA shrinks your checks. You only get 70% of your PIA if you sign up at 62 and your FRA is 67. If your FRA is 66, you get 75% of your PIA at 62. Every month you delay benefits boosts your checks slightly until you reach 70. That's when you get 124% of your PIA if your FRA is 67, or 132% if your FRA is 66.
What it takes to claim the $4,194 maximum benefit
Now that you understand how the government calculates Social Security benefits, it isn't too difficult to see what you'd need to do in order to claim the maximum $4,194 monthly checks.
First, you'd need to achieve the highest possible AIME. That means earning the equivalent of $147,000 in 2022 dollars over at least 35 years during your career. Then you'd have to delay benefits until 70 so you can get your largest possible checks.
For most people, that's not going to happen -- but you can still leverage the information discussed above to grow your checks considerably.
How to get the most out of Social Security
You can estimate your Social Security benefit by creating a my Social Security account. Here you'll find a record of all the money you've paid Social Security taxes on over the years, as well as a tool to help you determine your benefit at various starting ages based on your work history.
Check your earnings record and make sure the information here appears to match your own records. If you notice any discrepancies, fill out a Request for Correction of Earnings Record form, along with copies of your tax records for that year, and submit it to the Social Security Administration. This ensures an accurate benefit calculation.
You can also take steps to boost your income today to help raise your AIME. This could involve working overtime, getting a raise, switching employers, or starting a side hustle. Or you could use a combination of these strategies.
Now's a great time to think about when you'll claim Social Security as well. Delaying benefits is generally wise if you can afford to do so and believe you'll live until your 80s or beyond. You'll receive benefits for fewer years this way, but you'll probably get more out of the program overall.
Ultimately, when you claim Social Security is your call, but planning ahead is smart, even if you're decades away from signing up. Knowing how much you'll get from the program can help you figure out how much you need to save for retirement on your own to enjoy the lifestyle you want.