Your Social Security benefits are based on your average wages, but there's a maximum amount of money each year that counts in this calculation. That means there's a maximum monthly Social Security benefit paid out. In 2022, that maximum is $4,194 per month.
This is a huge benefit, especially considering the average retiree receives just $1,661 per month. If you want to try to optimize so you get it, there are a few steps you'll have to take -- and all of them will be a challenge. Here's what they are.
1. Earn a substantial amount of money
If you want a chance at the $4,194 maximum monthly Social Security benefit, earning a lot of money is the single most important thing you must do. Specifically, you must earn at least the maximum income that counts in the Social Security benefits formula.
Remember, as mentioned above, benefits are based on average wages up to a certain income level. That max income level is why there's a cap on the total benefits paid out each month. In 2022, income subject to Social Security tax is capped at $147,000. It doesn't matter how much more you earn than that amount. You only pay Social Security taxes on wages up to that level. And anything you earn above it won't count when the average wage your benefits are based on is calculated.
The amount of income that counts in the benefits formula changes over time. But it's always going to be the equivalent of that amount after adjusting for wage growth. So if you want to optimize for the $4,194 monthly benefit, that's the minimum you would need to earn every year.
2. Keep working for no less than 35 years
When the Social Security Administration determines your average wages, it does so by considering the 35 years your earnings were the highest.
That means you need at least a 35-year history of earning the maximum taxable income. If you have just 34 years when you earned the inflation-adjusted equivalent of $147,000, you would fall short of the maximum benefit.
If you manage to earn the requisite amount every year that you work, you can stop at 35 years and be on track to get the max benefit. But if you have some lower-earning years, you'll have to stay on the job for longer to get the $4,194 maximum monthly Social Security check. Working that extra time can push out years when you fell short.
3. Plan for a delayed Social Security claim
Finally, the last step is to make sure you can claim Social Security at 70 for the first time, rather than at a younger age -- despite the fact benefits first become available at age 62. Waiting is necessary because if you claim any time before 70, your benefit will be smaller than it could be.
The reason your benefit maxes out at 70 is because Social Security has a system of early filing penalties and delayed retirement credits. These apply to try to equalize out lifetime income received by early filers and late filers. Your benefit grows each year until age 70, so the max benefit is available only to those who wait until they can't increase it any more.
Ultimately, earning the inflation-adjusted equivalent of $147,000 for 35 years and waiting to get Social Security until 70 is going to be difficult. It's doable, but you'll have to hustle to increase your income early on and save plenty of money to support yourself if you don't end up being able to work until 70.
While you can set this goal, you should also save enough to ensure you're comfortable even if your Social Security benefit ends up being much smaller than $4,194 per month.