There are quite a few strategies for maximizing your Social Security benefit, especially when it comes to retired couples' timing when to begin the claims process. But if you really want to get the biggest benefit possible, the path is simple.
Simple, but not easy.
The maximum Social Security benefit individual could file to claim in 2022 is $4,194 per month. Very few of those filing for Social security qualify for that rate. Here are three steps you will need to take to even be considered for the maximum monthly payment.
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1. Work your way toward a high-paying job
Like other income taxes, Social Security tax is only applied to a certain amount of your wages. But instead of taxing you less on your wages below a certain income threshold, like income taxes, Social Security taxes are a set amount of any and all wages up to a certain annual wage limit. If you earn over that amount, you don't pay any more Social Security taxes into the program.
The wage limit for Social Security tax is adjusted every year for inflation. In 2022, only the first $147,000 of taxable wages is taken into account. Those earning $147,000 and above will pay $9,144 into Social Security (with a matching amount coming from their employers). A self-employed person pays both sides of the tax ($18,288). Every year, roughly 6% of covered U.S. workers have earnings above the taxable maximum.
Since $147,000 is a very healthy salary, it could take years to work your way up to that salary range or require a specialized degree. Or you might be lucky enough to start earning that much straight out of college. It's important, however, that once you reach an income above the salary cap for Social Security taxes, you maintain that level of income.
2. Maintain those high earnings for at least 35 years
Benefits are calculated based on your earnings history. The program takes your 35 highest-earning years, adjusted for inflation, and uses those to determine your benefit. So to maximize it, you must earn above the wage limit on Social Security taxes for at least 35 years.
There's no way around this: You must have a long and fruitful career if you want to maximize your retirement check.
3. Wait as long as possible to collect your benefits
Lastly, to collect the maximum monthly benefit, you must wait until age 70 to start collecting. Full retirement age (when you're able to collect your full Social Security benefit) for most people will be 67. But for every year you delay claiming, the government will tack on an extra 8% up until 70. Delaying any longer provides no additional benefit.
There are other good reasons to delay Social Security until 70 if you can afford it. Chief among them is that it provides good insurance if you end up living a long and healthy life. Nobody wants to start collecting Social Security early only to regret not having enough monthly income to support themselves in their 90s.
If you've earned above the Social Security wage limit for 35 years, you should have enough savings to support yourself in your 60s and delay claiming your benefit until 70.
Do you really want to max out Social Security?
If your only goal is to maximize your Social Security benefit, then this is the path to do so, but you might want to ask yourself if it's worth it in your situation.
It's important to remember that Social Security is a progressive system. Lower earners get a higher percentage of their wages back in benefits than high earners. So the marginal amount you miss out on when you don't reach the maximum is relatively small.
If you're in a high-paying job, but you don't like the work, you might enjoy life more by taking a lower wage in a field you love. Saving more of your salary while you're working that job will allow you to make the career change and take control of your life. Perhaps you could even retire early and not work the full 35 years to max out Social Security benefits.
If you're self-employed, you might benefit from structuring your business differently and paying yourself a lower wage. While that will lower your Social Security benefit, it can save you a lot in taxes. And you can use those extra savings to invest for your retirement as you see fit, essentially giving yourself a more flexible retirement benefit. Be sure to consult a professional to determine a reasonable wage and any tax implications.
Sure, it would be nice to receive a check for $4,194 from the government every month, but consider what you're giving up before you pursue it.
