Thanks in part to its highest inflation adjustment in decades, the largest possible monthly Social Security benefit for someone retiring in 2023 is a whopping $4,555 per month. While that's an amazing headline number, it's also something of a fantasy. Very few people will qualify to get that maximum check. After all, to get it, you need to earn at least the Social Security maximum (currently $160,200) each year for at least 35 years, and then wait until at least age 70 to start collecting.
The odds that anyone is going to hit "all of the above" to qualify for that maximum amount are remarkably low. Yet it still makes sense to understand what it would take to reach that target. Doing so will allow you to make the most of the trajectory you're on and make the best decisions to maximize the value to you of the benefit you've earned throughout your working career.
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Your highest 35 years of indexed, covered earnings
When you file to collect Social Security, the program considers both how much you earned each year you worked in covered jobs and what the national average wages were during that year. This allows for a more apples-to-apples treatment of money you earned recently when compared with money you earned when general wages were lower before inflation took its ugly toll.
Ultimately, Social Security uses the highest 35 years of your indexed covered earnings from work jobs. If you have fewer than 35 years of work, your record will have some zeros in it. On the flip side, if you have more than 35 years of covered work, Social Security will take your 35 highest of those years -- up to the annual caps, after the indexing math -- to determine your benefit.
What that means to you is that if you've maxed out your covered salary throughout your entire career, it won't really matter if you work 35 years or 40 before you call it quits. On the other hand, if you've worked your way up to a high income over time, then working another year or two at your higher salary level could make a decent difference in your benefit level.
Your age when you collect makes a huge difference
In addition to your earnings record, the other key thing Social Security considers when determining your benefit is the age you are when you start collecting. You can start as early as age 62, and the longer you wait -- up until age 70 -- the more you will collect each month. It's a trade-off, where you can choose between getting smaller checks for more months, or larger checks for fewer months.
The difference can be quite substantial. Say you were born in 1960 or later, and your Full Retirement Age benefit would be $2,000 per month. If you retire at age 62, that benefit would be cut by $600, to $1,400 each month. On the flip side, if you wait until age 70, that benefit would increase by $480, to $2,480 per month. That's a larger than $1,000-per-month difference -- a meaningful swing in anyone's budget.
Still, the challenge is that you have to make it to age 70 before you collect to get that outsize amount. You'll have to figure out a way to cover your costs until then.
Whether that comes from continuing to work, from drawing down your savings, or some combination of both is largely up to you. Still, it's important to recognize that people's participation in the labor force tends to drop as they age. Some of that is due to planned retirements, but some of it happens because people can't keep working for one reason or another. So if you're planning to work until you're at least 70, it wouldn't hurt to keep a bit of cash socked away, just in case those plans get changed on you.
Get started now to boost your outlook
As long as you're still working and under age 70, chances are good that you can take steps to increase your Social Security benefit. Even if the $4,555 maximum benefit is more fantasy than reality, every little bit helps.
Given the way Social Security works, though, it can take years to make a meaningful difference in your benefit amount. So if you want to get yourself closer to that maximum, get started building your plan now, and give yourself your best chance of taking home a bigger check every month of your retirement.
