Although they were never intended to fully replace an income in retirement, Social Security benefits play a prominent part in the average person's financial picture. The Social Security Administration estimates its monthly payouts to retirees are about 40% of middle-income workers' pre-retirement wages. That proportion is higher for retirees who earned less during their working years, and lower for higher earners.
Either way, the more you put into the pool, the more you get back out when it comes time to start drawing.
But how do you ensure this year's maximum monthly payout of $4,555? Here's a closer look at what it takes.
You've earned the maximum income taxed by the SSA for 35 years
Social Security provides income stability for those who don't have access to a pension plan, or may not have been able to save much for retirement on their own. Social Security retirement benefits are typically proportional to the amount that eligible individuals put into the pool -- in the form of taxes -- while they're working.
To this end, just as there's a limit to how much any individual can collect in retirement, there are limits to how much Social Security taxes people while they're working. Only the first $147,000 of 2022 wages were taxed for Social Security purposes; the figure's been bumped up to $160,200 for 2023. Earning anything above and beyond this maximum taxable income wouldn't add to your eventual monthly payment, so the agency doesn't unfairly tax you on earnings in excess of these numbers -- although ordinary income tax rates certainly ramp up when you reach these levels of compensation.
But do know that you would have had to earn this sort of relatively high income for at least 35 years to max out your benefits now. In 2012, the maximum amount of income taxed by the Social Security Administration was $110,000. In 1992, the figure was $55,500, which would have been a sizable salary at the time. In 1982, the maximum amount of income taxed for Social Security purposes was $32,400.
If that's the kind of income you were earning then, you still might be eligible for the maximum payback now.
Image source: Getty Images.
Also know that while you must have worked for at least 35 years to see monthly Social Security checks of $4,555 now, you don't necessarily need to have worked for the 35 consecutive years leading up to the point when you claim benefits. The Social Security Administration simply looks at your 35 highest-earning years, whenever you worked them, to figure out what it owes you in retirement.
You're 70 years old when you first claim benefits
That being said, even if you've earned the maximum amount of income the Social Security Administration cares about for at least 35 years, this still doesn't ensure you'll be cashing monthly checks of $4,555. Securing the maximum benefit also means waiting until you're 70 years old to begin collecting your retirement payments.
You can start receiving checks or direct deposits before you reach 70, to be clear. But you won't make nearly as much. For this year, retiring at 67 would result in a more modest monthly check of $3,808. Anyone starting benefits at 65 would see monthly payments of only $3,279. Indeed, you can even retire -- with benefits -- if you're 62, although your monthly check would be worth only $2,572, even if you've earned the maximum about of Social Security taxable income for 35 years.
There may be good reasons for not waiting as long as you can before you start claiming Social Security benefits. Yet there's a clear financial price for not doing so.
Not enough, and not soon enough?
There are other noteworthy nuances to determining exactly how much Social Security you'll actually get when you retire, and when you can get it. For instance, spousal and survivor benefits can change the amount due, or change when full benefits can be claimed. Be sure to check with the Social Security Administration to understand all of your particular options.
Either way, the figure of $4,555 is still the maximum anyone will receive under any scenario.
Just for the record, however, most recipients aren't seeing payments anywhere close to that figure. The average monthly Social Security check is actually less than $1,700 per month. That's not much, and may not be enough to fund the sort of retirement lifestyle you envisioned for yourself.
If that's the case for you, don't sweat it. There are things you can do now to beef up your retirement income. Clearly, saving and investing more is an option, if you have time. Buying income-driving dividend stocks or interest-bearing bonds is another option, if you've got a nest egg to work with. Moreover, even if you're receiving retirement benefits, you can still earn work-based wages. Doing so just partially reduces your Social Security benefits until you reach age 70. It may well be worth it... for you.
Whatever the case is, any plan is better than no plan. Start by asking the Social Security Administration what your options are, and if any of them can be changed.
