The average Social Security benefit currently being paid out to a retired worker is about $1,372 per month, or $16,464 per year. However, many Americans who have earned relatively high salaries throughout their careers get much more. In fact, the maximum possible Social Security benefit that can be paid in 2018 is more than twice this amount -- and that's before the increase seniors can get for waiting to claim.
How Social Security benefits are calculated
The calculation of a worker's Social Security retirement benefit is a two-part process. First, the worker's primary insurance amount, or PIA, is determined. This is the monthly benefit an individual would receive if he or she chooses to start collecting their Social Security retirement benefit at their full, or normal, retirement age.
This is done by taking all the worker's annual earnings throughout their career, adjusting each year for inflation, and taking an average of the 35 highest-earning years. This average is then divided by 12 to find the worker's lifetime average-indexed monthly earnings, which is then applied to the current benefit formula. For 2018, this is:
- 90% of the first $896
- 32% of the amount greater than $896, but less than $5,399
- 15% of the amount greater than $5,399
Once the PIA has been calculated, the second step is to adjust the benefit based on the age at which the worker decided to claim their retirement benefits. If the benefit is claimed before reaching full retirement age, the PIA will be permanently reduced, and if the beneficiary decides to wait, it will result in a higher monthly benefit.
These adjustments are made as follows:
- If a worker claims their Social Security retirement benefit before full retirement age, their PIA will be reduced at the rate of 6.67% per year (0.56% per month) for as many as 36 months before full retirement age. If the worker claims their benefit more than 36 months early, it will be further reduced by 5% of the PIA per year (0.42% per month). However, the earliest a retirement benefit can be claimed is age 62.
- If a worker chooses to wait beyond their full retirement age to start receiving their retirement benefit, their PIA will be increased at the rate of 8% per year (0.67% per month) until as late as age 70. Since individuals reaching age 70 in 2018 have a full retirement age of 66, this means that the maximum possible increase is 32%.
The maximum Social Security benefit in 2018
Based on the formula above, the maximum primary insurance amount, or the benefit a retiree could receive at full retirement age, would be $2,788 per month, or $33,456 per year.
However, keep in mind that this assumes that the beneficiary claimed at full retirement age. To maximize your Social Security benefit, you'll need to wait until age 70 to claim. For an individual reaching this age in 2018, this would translate to a 32% increase in their monthly benefit, which translates to a maximum possible monthly Social Security retirement benefit of $3,680, or $44,162 per year.
How to get the maximum Social Security benefit in 2018
To be clear, in order to get the maximum possible Social Security benefit in 2018, a couple of things need to be true. First, you would need to have earned more than the Social Security taxable maximum in at least 35 different years. Also, you would need to have chosen to wait until age 70 to claim Social Security benefits, and you must be turning 70 during 2018, since the past few years of maximum earnings -- which had higher inflation-adjusted taxable wage caps -- would be necessary to get the highest possible benefit.
As you might imagine, this combination doesn't apply to many people. Only 6% of covered workers have earnings above the taxable maximum in any given year (not every year), and only about 4% of seniors wait until age 70 to claim their retirement benefits. When you consider these statistics and apply them to the roughly 3 million Americans who will turn 70 in 2018, it's easy to see why this isn't a particularly large number.