In 2021, the maximum Social Security benefit is going up slightly, to $3,895. Retirees who receive this amount will have an annual income from Social Security of $46,740 per year. That's a generous amount of money -- especially since it's guaranteed for life and benefits are protected against inflation. 

Unfortunately, the vast majority of retirees will receive far less than the $3,895 per month maximum. Here's why you need to plan for a much smaller check. 

Older man holding piggy bank from outstretched arms that are trying to grab it.

Image source: Getty Images.

Very few get the maximum Social Security benefit 

In order to earn the maximum $3,895 per month in retirement benefits in 2021, you'd have had to accomplish two things:

  • Work for at least 35 years in a job where you pay Social Security taxes
  • Receive earnings equal to or above the "wage base" limit for at least 35 years 

The first one is relatively easy to accomplish for most people, but the second one is not.

The wage base limit is the maximum income the government collects Social Security taxes on (and the maximum amount of earnings your benefits are based on). And it's a pretty high limit. 

In 2021, the wage base limit will be $142,800, up from $137,700 in 2020. And in 2019, the wage base limit was $132,900. During the 2019 year (the most recent for which data is available), just 6% of eligible workers had the maximum taxable earnings according to the Social Security Administration.

That's not a very large percentage. And those numbers have been pretty consistent, with just 6.2% of workers earning the maximum taxable earnings in 2015 and 6.1% in 2005. In order to earn the maximum monthly Social Security benefit, you don't just have to be part of the approximately 6% of workers for one year -- you have to be part of that small minority every year for at least 35 years.

The Social Security Administration's benefits formula is based on average wages calculated based on the 35 years when you earned the most (after adjusting for inflation). If you have a single year during your 35 highest earning years when your wages dip below the wage base limit, that year would drag down your average wages and thus reduce your benefits below the maximum. 

This doesn't mean you must have the maximum taxable earnings every year of your entire career. You can work longer than 35 years to push some low-earning years out of your average. But with so few workers hitting the limit, most people simply aren't going to log 35 years of maximum earnings. That explains why the average Social Security benefit -- which is expected to hit $1,542 in January 2021 -- is much lower than the maximum.  

Since most people don't get the maximum benefit, you'll want to figure out what your benefits will likely be. You can do this by signing into your Social Security account online. 

Since these retirement benefits are meant to replace only around 40% of pre-retirement wages, you may be disappointed at how low your benefit is. But it's best to find that out while there's still time left to plan accordingly, so check out your earnings history and don't assume your benefits will be anywhere near the maximum.