If you're planning to rely mostly on Social Security in retirement, you might want to rethink your plan. The average monthly retirement benefit was recently just $1,666 -- or about $20,000 on an annual basis -- and that's probably not the kind of income you were envisioning for yourself. (Note, too, that it's an average, meaning that millions of people collect less.)
Some people are collecting the maximum monthly checks of $4,194, though, totaling more than $50,000 over a year. If you want to know how to be one of them, read on.
First, the bad news
Unfortunately, it's very unlikely that you'll be able to collect the maximum payout from Social Security -- whether you're retiring this year, when the maximum benefit is $4,194, or whether you retire in the future, when the benefit will be larger. That's because in order to qualify for it, you need to have earned a certain maximum income (or more) -- in each of 35 years.
Why 35? Well, the formula used to determine your Social Security benefits starts with your (inflation-adjusted) earnings in the 35 years in which you earned the most. So if you have 30 years of earnings, five zeroes would be factored into the calculations. And if you have 40 years of earnings, your five lowest-earning years (on an inflation-adjusted basis) will be kicked out, with only your 35 highest-earning years counting.
In general, the greater your earning history, the greater your Social Security benefits -- up to a point. To qualify for the maximum benefit, you'll need not only to have earned the maximum income allowed in each of at least 35 working years, but also to have delayed starting to collect your benefits until age 70. That's because while you can start collecting benefits as early as age 62, benefits collected early will be smaller (though there will be more checks).
You can also delay starting to collect beyond your full retirement age (66 or 67 for most of us) -- up to age 70 -- and doing so will make our benefits about 8% bigger for year delayed. Delay from age 66 to 70, and you're looking at a 32% increase.
So to grab that maximum Social Security benefit, you'll need to delay starting to collect your benefits until age 70 -- and you'll need to have hit the earnings cap in each of your 35 years of earnings that are used in the calculation. The earnings cap is the income beyond which you won't be taxed for Social Security while you're working and earning, and for 2022, it's $147,000. Earn $147,000, and your entire income is subject to taxation. Earn $1,147,000, and $1 million of income is not subject to taxation for Social Security. That cap, which is adjusted upward in most years, is the minimum earnings you need to have for 2022 to qualify for the biggest benefit check -- and you need to have earned at least as much as the cap in all the 35 years that are counted.
You probably are concluding by now that you won't qualify. But fret not -- there's some good news here.
The good news
While you probably won't be collecting the biggest Social Security benefit checks, there are still steps you can take to make your checks as big as possible. For example, try to delay collecting your benefits as long as you can, up to age 70. Not everyone can do so, but even a year of delaying will beef up your checks. You can also make sure you have those 35 years of earnings. If you were going to retire after working for, say, 33 years, try to work two more years. (While you're at it, set up a my Social Security account at the Social Security Administration (SSA) website, so that you can review the SSA's record of your earnings, year by year. If you spot any errors, look into having them fixed.)
So don't despair. There's a good chance that you can get your checks to be well above average in size. That's still not likely to be sufficient to support you in retirement, so do some retirement planning soon, and figure out how you'll amass the kind of income you'll need in the future.