Social Security has announced changes for 2019 that include an increase to the maximum Social Security benefit payable to recipients who retire next year. In 2018, new retirees could pocket as much as $3,698 per month, but in 2019, they'll be able to collect up to $3,770 per month.
Your chances of qualifying for that much in Social Security, though, are pretty slim. Read on to find out more about the maximum you can collect in Social Security at different ages next year and steps you can take to maximize your own benefit.
How Social Security works
To qualify for Social Security, you need to accumulate 40 work credits, which works out to about 10 years of work. Once you've accumulated the credits you need, you can begin collecting benefits as young as age 62 or wait as late as age 70. You'll only receive 100% of your benefit amount, however, if you claim at your full retirement age. If you claim earlier than that, your benefit check will be reduced, but if you claim later than that, you'll get a bonus equal to 8% per year you delay.
Social Security uses a complex calculation to figure out how much you'll receive in benefits at full retirement age, but the program is designed to replace roughly 40% of your preretirement income.
The calculation begins with adjusting your highest-earning 35 years of employment for inflation to come up with your average indexed monthly earnings (AIME). Then, Social Security reduces your AIME at certain income levels called bend points to come up with your primary insurance amount. This is the amount you can receive if you claim at full retirement age.
If you claim early, your primary insurance amount will be reduced by five-ninths of 1% per month for the first 36 months you claim early and by five-twelfths of 1% for every additional month you claim early. If you wait to claim until after full retirement age, then you'll get delayed retirement credits that increase your payout by two-thirds of 1% for every month you delay, up to age 70.
The maximum amount payable in 2019
The good news is that the maximum amount payable to new retirees will increase next year, but the bad news is that to qualify for this maximum payment, you need to have had income throughout your career that's at or above the annual taxable limit, which was $128,400 in 2018 and will be $132,900 in 2019.
If you qualify for the maximum benefit possible, then you'll receive $2,209 per month if you retire at age 62 or $3,770 per month if you retire at age 70. The following table shows how the maximum payments are changing in 2019 from 2018 at ages 62, 65, and 70.
|Maximum Social Security If You Retire in 2019|
How to get the most money possible from Social Security
Social Security is intended to supplement a retiree's income, but because many Americans have limited retirement savings, it often ends up as a major source of income in retirement. For this reason, getting the most you can from Social Security is important.
While it would be nice to get the maximum amount paid by Social Security, the following chart shows that most Americans wind up collecting between $700 and $1,800 per month.
If you want to receive the biggest monthly check possible from Social Security, then you'll need to maximize your earnings while you're working so that your AIME is as high as possible. Then, you can delay collecting benefits until age 70 to benefit from delayed retirement credits.
For instance, let's say Rick has a full retirement age of 67 and he qualifies for a full retirement benefit of $1,000. If Rick claims at age 62, he'd only receive 70% of his full retirement age benefit, or $700 per month. However, if he retires at age 70, he'd receive 124% of his benefit because of delayed retirement credits, or $1,240 per month. The $1,240 payment would be a whopping 77% higher than his age 62 benefit.
Alternatively, if your goal is to collect the most in lifetime benefits possible, then you need to consider your health. If longevity runs in your family, waiting until you're age 70 to claim can produce the most in lifetime Social Security benefits if you live a long life. However, if you're in poor health, then claiming earlier may be wise. As you can see in the following chart, the lifetime benefits that a person can collect if they claim at age 70 won't eclipse the lifetime benefits associated with claiming at age 67 until a person's in their early 80s.
If you haven't worked the maximum 35 years used by Social Security to calculate benefits or have a lot of low-income earning years in your past, then continuing to work later in life also can make sense.
When you have less than 35 years of work history, Social Security uses zeros in its calculation for determining average monthly benefits. Replacing those zeros on your record can give your primary insurance amount a boost. Similarly, if you earn more now than you did in the past, continuing to work so that you replace lower-income years on your work record can also increase your benefit.
This strategy can be used even if you're collecting Social Security because Social Security recalculates your primary insurance amount to take into consideration changes in your work record every year. However, if you're younger than full retirement age, working, and collecting Social Security, some of your benefit can be withheld until you reach full retirement age if you earn over $17,640 next year because of Social Security's earnings test.
The above strategies could help you achieve financial security in retirement.