The maximum monthly Social Security retirement benefit in 2023 is $4,555, but it probably won't be easy to collect a check that big.
The average benefit for retired workers in January was just $1,779.16. There are two factors keeping the average benefit so far below the maximum: the amount the average person earns in their career, and the average age people claim retirement benefits.
If you want to get the maximum $4,555 monthly payment (adjusted for inflation) from Social Security in your retirement, here are three things you must do.
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1. Earn a sizable income for 35 years
Social Security is based on your income during your working career, so you have to earn a lot to get a lot back.
The way it works is the Social Security Administration takes your average earnings over your 35 highest-earning years, adjusted for inflation. It then uses a formula to compute your benefit from that number.
If you earn more than the maximum taxable amount for Social Security in 35 years, you'll max out the benefits. This year, anyone earning more than $160,200 will hit the maximum. You can look up historical maximums on the Social Security Administration website.
If you haven't maxed out your Social Security earnings for 35 years, you still have work to do before you can retire and receive the maximum benefit.
2. Delay benefits until age 70
Every year you delay your benefits beyond your full retirement age, you earn delayed retirement credits. Those credits max out at age 70.
Most readers will have a full retirement age of 67. Each year you delay beyond your full retirement age earns an 8% increase in monthly benefits. So if you delay until age 70, you'll receive 124% of your full retirement benefit.
Someone turning 70 in 2023 will receive 132% of his or her full retirement benefit because that person's full retirement age was 66. Anyone born in 1960 or later, though, only gets up to three years of delayed retirement credits.
3. Save for retirement on your own
Even if you're planning on getting the maximum $4,555 monthly benefit from Social Security, you should be saving for retirement on your own.
A plan to work for at least 35 years in a well-paid and retire at age 70 is all well and good, but there are no guarantees you'll be able to keep working until 70. You might face a sudden layoff, or your health may deteriorate to the point where you're no longer capable of doing the work. Perhaps you just don't want to work until 70.
Furthermore, you may find that even $4,555 isn't enough to live on in retirement. After all, that's less than $55,000 per year. If you have grand plans to travel and eat well, that might not cut it.
In that case, you'll need other retirement savings to ensure you have enough to bridge the gap until you reach age 70. Using a tax-advantaged retirement account like an IRA or 401(k) may be your best option. But any type of brokerage account that you can consistently put some cash to work in should do.
It's worth pointing out that tapping your retirement savings and delaying your Social Security benefits as long as possible typically works out to maximize your portfolio and minimize your taxes. After all, you can think of your future Social Security benefits as just another asset in your retirement that will produce cash flow, why wouldn't you take the guaranteed return offered by delaying?
If you have a long, successful career, you're likely to receive a sizable Social Security check. You may even be able to receive the maximum benefit. But don't let that stop you from making a backup plan to ensure you can enjoy your retirement on your own terms.
