You may not realize it now, but the vast majority of today's working Americans will lean on Social Security income to make ends meet during retirement. According to a survey from national pollster Gallup in April 2020, an all-time record 88% of nonretirees expect Social Security to be a "major" or "minor" source of income when they retire.
Yes, it's quite possible dire economic conditions associated with the coronavirus disease 2019 (COVID-19) pandemic partially skewed these results. Then again, 89% of current retirees surveyed by Gallup noted that they rely on their monthly Social Security benefit to some degree each month to help cover their expenses.
The statistics are clear: You're probably going to rely on Social Security income, to some extent, during retirement. This means it's in your best interest to generate as much income from Social Security as possible.
Though there are more than a half-dozen factors that can ultimately affect what you'll take home from the program, there's a surefire way to get the biggest Social Security benefit possible. To do so, you'll need to do three things.
Work a minimum of 35 years
The first stepping stone to the biggest Social Security benefit is to work a minimum of 35 years, if not longer.
When the Social Security Administration calculates your monthly payout at full retirement age -- i.e., the age at which you become eligible for 100% of your payout, as determined by your birth year -- it'll take into account your 35 highest-earning, inflation-adjusted years. This is to say that for every year less of 35 that you've worked, zero dollars is averaged into your eventual monthly payout. In order to have a chance at maximizing what you'll receive each month, you'll need to have worked at least 35 years.
You'll need to have hit the maximum taxable earnings cap for 35 years
Secondly, but building off of the first point, you'll need to make a lot of money for those 35 years of work that'll count toward your monthly benefit calculation.
Generally speaking, the more you make each year in wages and salary (sorry, investment income doesn't count), the higher your monthly payout can be at full retirement age (up to a point). To "max out" your earnings in a given year, you simply need to hit the maximum taxable earnings cap, which in 2020 is $137,700.
This payroll tax earnings cap increases most years on par with the National Average Wage Index. Should you earn an amount annually that's at least equivalent to the maximum taxable earnings cap, and do this for 35 years, you'll have an opportunity to net the biggest Social Security benefit possible.
You'll need to wait until age 70 to claim your retirement benefit
The third thing you'll need to do is be patient.
Although Social Security benefits can be claimed by beneficiaries at age 62, the Social Security Administration dangles a carrot to tempt folks to hold off on taking their payout. For every year a retired worker holds off on claiming their benefit, their monthly payout will grow by up to 8%, until age 70.
All things being equal, such as work history, earnings history, and birth year, a retired worker taking their Social Security benefit at age 70 can net a monthly payout that's up to 76% larger than a retiree taking their benefit as soon as they're eligible (age 62).
The biggest benefit possible isn't always the best choice for retirees
Statistically speaking, more people than not would benefit by waiting until age 70 to take their Social Security payout. But maximizing your monthly payout isn't always going to be the best choice. In certain situations, accepting a reduced monthly payout can actually result in a larger lifetime payout from the Social Security program.
As an example, a person with a chronic illness might be better off claiming their retired worker benefit early. Though it would result in a monthly payout reduction of as much as 30% from what they would receive at full retirement age, this early claim could be a smart move if they fail to reach the average U.S. life expectancy of close to 79 years.
In other words, if a retiree maximizes their monthly payout by waiting until age 70 to begin taking their benefit but passes away at age 72, they wouldn't have gotten very much out of the Social Security program. But if this person knew their chances of reaching, say, age 80 were slim due to a chronic health condition, claiming early would give them a decent chance to maximize their lifetime payout from the program.
Another instance where an earlier claim can be worthwhile is when one spouse has a substantially lower annual income than their partner. Logically, allowing the higher-income spouse's benefit to grow over time makes sense for the couple. But in order to generate some income for the household, it may be prudent for the low-income spouse to claim their benefit early, even if it's at a reduced rate.
The point is, getting the biggest Social Security benefit possible doesn't always mean netting the highest monthly payout.