Social Security doesn't pay all seniors the same retirement benefit every month. Rather, the benefit you're entitled to is calculated based on your personal earnings history.
This year, the maximum monthly amount you can receive from Social Security is $4,194. Most seniors, however, receive significantly less. And unless you happen to be a very high earner, you can probably write off the idea of collecting $4,194 yourself.
An unrealistic number
To qualify for the maximum monthly Social Security benefit, you need to do the following things:
- Earn the equivalent of the yearly wage cap or more for at least 35 years
- Delay your Social Security claim until the age of 70
If you're not familiar with the wage cap, it's the maximum amount of earnings that Social Security will tax you on in a given year. This year, for example, the wage cap sits at $147,000, so earnings beyond that point aren't subject to Social Security taxes, and they're also not factored into future Social Security benefits.
Meanwhile, the Social Security benefit you're entitled to in retirement will specifically be based on your earnings during your 35 highest-paid years on the job. To collect the maximum monthly benefit, during those 35 years, your earnings will have to reach or exceed the wage cap. And you'll need to delay your claim until age 70, which is the latest age to accrue delayed retirement credits for postponing a Social Security filing.
What if you can't claim the maximum monthly benefit?
If you're thinking there's no way you can snag $4,194 a month from Social Security, well, you may be right. But that doesn't mean your retirement is doomed. Quite the contrary -- there are plenty of steps you can take to make up for your lower benefit.
1. Boost your nest egg
The more money you pump into your IRA or 401(k) plan, the less reliant on Social Security you'll end up being as a retiree. If you're currently not maxing out your annual retirement plan contributions, make an effort to boost your savings rate modestly -- say, by 1% of your income per year, by $1,000 per year, or by another threshold you feel is doable.
2. Invest strategically
Certain investments can set you up with long-term retirement income. These include municipal bonds and dividend stocks. REITs, or real estate investment trusts, are also a good option for generating steady, ongoing income, since they're required to pay at least 90% of their taxable income to shareholders as dividends.
3. Plan to work part-time
Many seniors end up working in some capacity once they enter retirement. Doing so could be a great way to generate income while keeping yourself busy so you spend less money on entertainment. There are different job options you can look at, but one idea is to think about the sort of position you might actually find enjoyable. If you worked as an accountant all your life but grew to dislike the monotony of crunching numbers, you may want to try to find a more creative job in retirement, whether it's writing web content or building furniture in your basement.
There's nothing wrong with wanting to get as much money from Social Security as you can. But don't stress if you're not eligible for the maximum monthly benefit. Most seniors just plain aren't, but you can still set yourself up with a number of solid income streams to make up for that.