If you retire in 2019, the maximum Social Security retirement benefit you can collect is $3,770 per month -- but it's unlikely that you'll receive that much money. The Social Security Administration determines your benefit based on your work history, and the actual amount you'll collect depends on how many years you worked, how much money you earned per year, and when you choose to begin collecting your benefits. You need to clear some pretty high hurdles to receive the biggest possible benefit, and very few Americans do. But there are still some steps you can take to increase your Social Security checks dramatically.

Social Security: How it calculates your benefit

To understand how to maximize your Social Security benefits, it helps to understand how Social Security works, including how your retirement benefit is calculated. Fair warning: It gets complicated. However, once we wade through the details, we'll walk through a simple, real-life example.

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In order to qualify for Social Security retirement benefits, you need to accumulate 40 work "credits." These credits are awarded based on earned income, and you can earn up to four credits per year. The amount you must to collect a credit changes from year to year, but in 2019, you earn one credit for every $1,360 in earnings subject to payroll taxes. Therefore, if your taxable earnings exceed $5,440, you'll receive the maximum of four credits. Since most people earn enough money to collect all four credits every year, most people qualify for retirement benefits after 10 years of work.

If you qualify for benefits, the amount of your Social Security check won't be determined by the amount of money you paid in payroll taxes during your career. Instead, Social Security calculates your benefit using a complex formula. First, it determines your average indexed monthly earnings (AIME). Then it plugs that figure into a formula to determine your primary insurance amount (PIA), or the amount you're entitled to receive at your full retirement age

Social Security does this calculation for you, but in case you're curious, here's how it works. 

Your AIME is the average, inflation-adjusted, taxable income you earned during your 35 highest-earning years. If you work for more than 35 years, then your lowest-earning years aren't considered. If you worked for less than 35 years, then Social Security plugs zeros into your AIME calculation for those missing years. So if you worked for 25 years, then your work record for this calculation would include 10 years' worth of zeros, which can lower your retirement benefit considerably (more on that in a minute).

To adjust your historical income for inflation, Social Security uses the Average Wage Index (AWI), a measure of average national income subject to federal income taxes plus contributions to deferred compensation plans like a 401(k). Social Security indexes your historical earnings based on the year you turn 62 (the soonest you can claim Social Security), but because there's a two-year lag to its AWI measure, your income is actually inflation-adjusted by the AWI for the year you turn age 60.

Once Social Security is finished adjusting your income for inflation, it totals your 35 years of income and divides the sum by 420, which is the number of months in 35 years. The result is your AIME.

Social Security then uses your AIME to determine your primary insurance amount. First, it divides your AIME into three parts that are separated by income thresholds known as bend points. It then multiplies each of those portions by a percentage and adds the resulting dollar amounts together. The sum is your primary insurance amount.

The bend points change from year to year to reflect changes in the Average Wage Index. In 2019, the first bend point occurs at $926, and the second occurs at $5,583. Meanwhile, the percentages that are applied to the three different portions of your AIME are fixed:

% Applied to AIME up to First Bend Point

% Applied to AIME Between First and Second Bend Points

% Applied to AIME Above Second Bend Point

90%

32%

15%

Source: Social Security Administration.

Once you apply those percentages to the corresponding portions of your AIME and add the results together, you get your primary insurance amount. If we plug in the bend points for 2019, your primary insurance amount is the sum of:

  • 90% of your AIME up to $926;
  • 32% of your AIME between $926 and $5,583; and
  • 15% of AIME above $5,583

Is your head spinning yet? If so, fear not -- a quick example should make things a bit clearer.

Say your AIME is $5,700. Here's the calculation for your monthly retirement benefit at your full retirement age:

0.9($926) + 0.32($5,583 - $926) + 0.15($5,700 - $5,583)

Now let's simplify that:

0.9($926) + 0.32($4,657) + 0.15($117)

Just one step left:

$833.40 + $1,490.24 + $17.55 = $2,341.19

Your maximum Social Security depends on when you claim

The above calculation tells you the benefit you'll be paid at full retirement age. But if you claim before or after your full retirement age, then your payment will be reduced or increased, respectively. Therefore, if you hope to secure the biggest payment possible, you need to know what your full retirement age is first.

One common myth is that the full retirement age is 65. That's true if you were born in 1937 or earlier, but if you were born after 1937, then it ranges from age 65 to age 67, depending on your birth year. If you're uncertain of your full retirement age, you can consult this table: 

Birth Year Full Retirement Age
1937 or earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67

Source: Social Security Administration.

Although full retirement age is the only age at which you can get 100% of your benefit, you can begin receiving Social Security benefits as early as age 62 if you're willing to accept a smaller payment. Social Security reduces your benefit by five-ninths of 1% for each month before full retirement age, up to 36 months. If you're ahead of schedule by more than 36 months, then the benefit is further reduced by 5/12 of one percent per month beyond 36 months.

Those reductions can really take a toll. For instance, if your full retirement age is 66 and you file at 62, you'll only receive 75% of your full retirement benefit, and if your full retirement age is 67, claiming at 62 will net you only 70% of your primary insurance amount. 

Clearly, claiming early isn't how to get the maximum Social Security benefit possible. To do that, you need to wait until age 70 to begin drawing benefits. Social Security awards delayed-retirement credits for every month you wait past your full retirement age to file, and those credits increase your full retirement benefit by two-thirds of 1% per month, or 8% annually, up until age 70. So, someone with a full retirement age of 66 or 67 would receive 132% or 124%, respectively, of their primary insurance amount at age 70 because of delayed-retirement credits.

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Strategies for maximizing your Social Security

As I mentioned, the maximum amount someone can receive in benefits in 2019 is $3,770 per month, but to get that payout you must have earned at least the maximum amount of income that's subject to payroll taxes for your entire 35-year work history, and you must have waited until age 70 to file. The maximum earnings subject to Social Security payroll taxes is $132,900 in 2019, and given that only 16.8% of all IRS tax-filers reported adjusted gross income above $100,000 in 2015, the income requirement is a hurdle that few clear.

As you can see in the following chart, most retirees collect between $700 and $1,700 per month in benefits, and very few collect over $3,000 per month.

A chart showing distribution of benefits by benefit amount.

Author's chart.

Although it's unlikely you'll receive the absolute maximum Social Security benefit, there are strategies you can use to make sure you get the biggest payment possible for you. In addition to waiting until age 70 to claim, here are some ways to maximize your Social Security benefit:

  • If your income is below the maximum taxable earnings level, then negotiating a pay increase or taking on a side hustle can boost your benefit by increasing your taxable income.
  • If your work history includes fewer than 35 years, then working even part-time later in life can eliminate zeros from your AIME calculation, thereby increasing your benefit.
  • If your work history includes over 35 years, but your earnings are higher now than they were in the past, continuing to work can replace low-earning years in your AIME calculation, increasing your benefit.

The first option increases your benefit because every additional dollar you earn can increase your AIME, unless you're above the taxable earnings limit already. If person A earns a fixed income of $50,000 per year over their entire 35-year work career, then their AIME is roughly $4,167. However, if Person B starts their career at $50,000 and gets a 3% raise every year, then their AIME would be roughly $7,198, or 72.7% higher than person A's. Therefore, even small increases in pay over a career can have a dramatic impact on the amount you receive in Social Security.

The other two options raise your benefits because zeros and low-earning years can significantly reduce your average monthly earnings over the entirety of your career. For example, a worker with 35 years of inflation-adjusted annual earnings of $40,000 has an AIME of $3,333.33 per month. Assuming they reached full retirement age in 2019, their primary insurance amount would be $1,604.

If the same person only worked 25 years, however, then those 10 years of zeros in Social Security's calculation would lower their AIME to $2,380.95 per month, which would bring their primary insurance amount in 2019 down to $1,299.  

One word of caution, though. If you claim benefits earlier than full retirement age and continue working, then you'll be subject to Social Security's annual earnings test, which limits how much money you can earn before triggering a withholding of some of your Social Security benefits. If you're younger than full retirement age, then the maximum amount you can earn without failing this test is $17,640 in 2019. Social Security withholds $1 for every $2 earned above that limit. A separate rule applies for the year in which you reach full retirement age. If you reach full retirement age in 2019, you can earn up to $46,920 in the months prior to turning full retirement age. Social Security will withhold $1 for every $3 above that limit. Once you reach your full retirement age, none of your benefits will be withheld no matter how much money you earn.

Since the earnings test limits aren't very high, it's easy to trigger benefit withholding. One strategy that may reduce the likelihood of that happening is to limit your earnings from work while you're younger than full retirement age and then withdraw money from a Roth IRA to bridge any gap between your earnings and spending. Because Roth IRAs are funded with after-tax money, withdrawals from them aren't included in Social Security's earnings test.

Withdrawing money from a Roth IRA can also reduce the risk that you'll pay income taxes on your Social Security benefits. If your taxable income exceeds an annual limit, then up to 85% of your Social Security can be subject to income taxes. Since Roth IRA withdrawals are tax-free, they can help keep you under that taxable earnings limit, potentially saving you thousands of dollars in taxes.

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Maximizing Social Security for couples

If you're married and don't want to wait until 70 to collect some Social Security, then consider drawing the lower-earning spouse's benefit first, so the higher-earning spouse can take advantage of delayed-retirement credits.

Let's say you're married, you both have a full retirement age of 67, you're the same age, and each of you qualifies for Social Security on your own work record. Let's also assume one of you has a primary insurance amount of $2,000, while the other's PIA is $1,000.

If the higher-earning spouse waits until age 70 to claim, they'll receive $2,480 per month because of delayed-retirement credits, which is $480 more per month than they'd receive if they claimed at age 67. If the low-income earner delays until 70, then they'll only receive $240 more per month than they would at age 67.

Because delaying the higher earner's benefit results in a larger benefit boost, it makes sense to wait as long as possible before claiming it.

Furthermore, delaying the high-earner's benefit ensures the greatest possible benefit for the longer living spouse. Widows and widowers collect 100% of whatever benefit was being paid to the deceased spouse, so long as the surviving spouse has reached full retirement age. But survivor's can't collect both a survivor benefit and their own benefit; they can only collect the greater of the two. Therefore, delaying the higher earner's benefit produces the highest income for a surviving spouse, providing additional financial security later in life.

Ultimately, the question of when to claim Social Security is a personal decision, and it shouldn't be based solely on maximizing your benefit. Your health, savings, retirement goals, employment situation, and expenses should all factor into your decision.

Nevertheless, taking advantage of Social Security strategies that can boost your benefit regardless of what age you begin receiving benefits is smart, especially since the majority of Social Security recipients get more than half their income from the program.

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