For many investors, Social Security checks don't factor in as a significant source of retirement income. Not only are these checks not always meaningful for even above-average earners, but the longevity of the Social Security program is in question.
For a handful of the country's consistently high earners, though, Social Security income isn't necessarily meaningless. Nearly a million people will collect Social Security payments right around this year's maximum benefit of $4,194 per month, a figure that's apt to be significantly beefed up in 2023 to reflect this year's rampant inflation.
Will you be one of these people? Here's how to know.
You'll be at least 70 years of age when you start collecting
There was a time when you'd qualify for Social Security's biggest checks at the age of 62. As people have begun living longer, though, the Social Security Administration has been forced to inch that number higher. Even after a beneficiary works until the age of 70, it's not completely unusual for them to continue collecting payments for 20 or even 30 years. That's a lot of money coming out of the SSA's pool for longer than anyone believed would be the case when the Social Security program was launched back in 1935.
If you don't want to work until you're 70, that's OK too. Most of us can start collecting a lesser amount as early as 67 years of age, while some people, depending on date of birth, can do so at 66. And if you're not turning 70 or planning on retiring this year, then good news -- your monthly check could even exceed the currently allowed maximum of $4,194 once you eventually start collecting benefits.
You regularly earned the equivalent to 2022 income of $147,000
It's not just your age that determines your Social Security income, however. What you get back out of it more or less reflects what you put into it while you were working. Only the people who were earning work income of at least $147,000 per year as of this year -- and a comparable figure in previous years -- will see the biggest possible checks in their retirement.
This number isn't pulled out of a hat. This is the income level at which Social Security taxes are no longer taken out and credited to your eventual benefits calculation (although ordinary income taxes really start to soar around this mark).
This number also hasn't always been the number at which Social Security taxes stop being taken out, either. For 2021, the cap was at $142,800 in taxable income. In 2020, the figure was $132,900. It's sure to be more than $147,000 next year. The point is that you have to earn at least this regularly adjusted amount for many, many years to get the maximum monthly benefit.
You've earned this sort of income for 35 years or more
But how many years do you have to out-earn this taxable income threshold figure at which the Social Security Administration stops taking its cut? Generally speaking, 35 is the number that most of us can safely assume applies. That's because for the purpose of figuring out your monthly benefits, the Social Security Administration only looks at your 35 highest-earning years; working at a job for more than 35 years won't necessarily help you collect more later.
On the other hand, working less than 35 years can hurt you, since it's one less year's worth of income the SSA could credit toward the calculation of your benefit checks.
Not etched in stone
For the record, these qualifications aren't etched in stone. For example, survivors' benefit payments can potentially change the payout number. And as strange as it might sound, some former railroad employees are collecting more than the maximum monthly benefit, because they're simultaneously drawing from a pool of funds established by the Railroad Retirement Act.
For general planning purposes, though, the $4,194 figure is the most anyone can even hope for -- most will actually collect significantly less.
Fortunately, nobody has to make generalized, hope-based guesses. Through its my Social Security website, the Social Security Administration can give you an income-based projection of your future monthly benefit and even show you different monthly benefits at different retirement ages. It's free, too, so be sure to check it out when creating your retirement plan.
