In 2021, the average Social Security benefit will be $1,543 per month. If you're thinking that isn't much, you're right. Social Security benefits are only meant to replace a small portion of pre-retirement income and aren't enough to live on.
Some retirees, thought, will get much more than the average benefit. In fact, the largest check you could receive in 2021 is $3,895. That's more than double what the typical retirees will get deposited into their bank accounts by the Social Security Administration (SSA).
Scoring the maximum benefit isn't something everyone can do. If you want to achieve this feat, there are three requirements you'd have to fulfill. Three Motley Fool contributors, and Social Security experts, explain what each step would entail to score the $3,895 maximum benefit.
1. Max out your earnings
Christy Bieber: Your Social Security benefit is based on something called your Average Indexed Monthly Earnings, or AIME. It's calculated by determining your average monthly wage after adjusting your annual earnings for inflation. Only your 35 highest-earning years are included in your AIME, though.
Since your benefit equals a percentage of your earnings, you'll need to have the maximum income every year for 35 years in order to earn the maximum benefit. You may be wondering how it's possible to earn the maximum earnings since technically there's no limit on how much money you can make. But you don't have to earn trillions of dollars to max out your benefits because there's actually a cap on how much income counts.
Each year, there's something called the wage base limit, which is the maximum wage subject to Social Security tax (and the maximum wage that counts in your AIME calculation). If you earn that wage or higher, you'll have maxed out your earnings for the year. That's not all that easy to do, though, as the wage base limit is fairly high. In 2021, it'll be $142,800 (a $5,100 increase versus the $137,700 limit in 2020).
Only around 6% or so of Americans have an income equaling or exceeding the wage base limit each year. And you have to do that for a full 35 years to max out your benefit. If your career is longer than 35 years, you can have some years below the wage base limit -- but you'll still need to spend the bulk of your working life earning a six-figure salary to have a chance at the maximum benefit.
2. Work 35 years or more to boost average earnings
Keith Noonan: The SSA will calculate your monthly benefits based on your highest 35 years of inflation-adjusted earnings. Ensuring that you work at least that many years will put you in better position to maximize your payments.
The SSA will take the sum of your top 35 years of inflation-adjusted earnings and divide that figure by 420 to determine your average indexed monthly earnings. From there, the agency will determine payments based on your adjusted average income bracket. Entering just a single year of income at the $0 level can significantly reduce your average earnings across the window of time that the SSA uses to calculate benefits, leading to lower benefits.
If you're able to work less and still be comfortably positioned for retirement with a smaller Social Security payment, that's not necessarily a bad problem to have. But you should still proceed with the understanding that working less will typically reduce what you get out of Social Security. For most Americans, working 35 years while paying Social Security taxes is a relatively simple bar to clear, but there are also advantages associated with working longer.
Many people will see their salaries climb as they get older and notch more experience in their profession, so working more than 35 years can add more periods of high earnings to the SSA's calculation and put you in better position to achieve the maximum monthly benefit. Working longer will result in your lowest-earning years being dropped from the 35-year calculation window and being replaced by contributions from higher-earning years. So if it's feasible, adding more high-income years will put you in better position to receive the maximum Social Security payment.
3. Claim at the right time
Maurie Backman: When it comes to signing up for Social Security, you have choices. You can file at your precise full retirement age, claim benefits early (beginning at age 62) at a reduced rate, or postpone your filing and accrue delayed retirement credits.
The SSA rewards seniors who decide to wait on filing for benefits rather than claim them right away. This is done with delayed retirement credits, which are worth 8% a year, or two-thirds of 1% per month. And they'll accumulate until you reach 70, at which point the SSA won't let you rack up any more.
If your goal is to secure the maximum Social Security benefit, then filing at age 70 is your ticket to doing so. If you claim benefits earlier, you'll lose the opportunity to max out those delayed retirement credits. You may need to plan to work a bit longer to buy yourself the option to delay Social Security as long as possible, or build a solid nest egg to dip into while your benefits grow, but if your goal is to score the maximum benefit possible, filing at age 70 is key.
That said, there's absolutely no reason to delay your filing past 70, as doing so won't increase your monthly benefit. If anything, it will actually put you at risk of losing out on income during your lifetime you'd otherwise be entitled to.
If you neglect to sign up for Social Security at age 70 on the nose, worry not: The SSA will pay you up to six months of retroactive benefits. But if you put off filing for too long, you'll lose out on money despite locking in the highest monthly benefit possible.