Social Security is often the largest source of income for older Americans, and most retirees depend on benefits to make ends meet. That should motivate current workers to aim for the biggest Social Security payout possible in retirement.
For context, the maximum retirement benefit is $4,555 per month in 2023, up from $4,194 per month in 2022. That figure increases each year due to changes in general wage levels, but anyone who wants the maximum benefit must follow these three steps.
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1. Delay Social Security benefits until age 70
The amount of income a retired worker receives from Social Security depends on (1) lifetime earnings and (2) the age at which benefits start. Workers become eligible at age 62, but they will not get their full benefit, also called the primary insurance amount (PIA), unless they wait until full retirement age (FRA) to claim Social Security.
Individuals who start Social Security before FRA will get a permanently reduced benefit, and individuals who start Social Security after FRA will get a permanently increased benefit, but the credits stop at age 70. That means anyone hoping for the maximum benefit must delay Social Security until age 70.
2. Spend at least 35 years in the workforce
As mentioned, lifetime earnings also play a role in determining how much income a retired worker receives from Social Security. Specifically, the benefits formula incorporates wages from their 35 highest-paid years. Those wages are adjusted for inflation and averaged, then run through a formula to calculate the PIA.
Individuals who spend fewer than 35 years in the workforce will have zeroes included in the benefits formula, and that will lower their PIA. That means anyone hoping to receive the maximum benefit must spend at least 35 years in the workforce.
3. Make more money than the taxable earnings limit for 35 years
The Social Security program is primarily funded by payroll taxes, but the income subject to taxation is limited under current law. Specifically, the taxable limit is $160,200 in 2023, up from $147,000 in 2022. The cap increases each year to keep pace with rising wages. But any income above the limit is not taxed by Social Security, nor is that income included in the benefits formula.
That means anyone hoping for the maximum Social Security benefit must make more money than the taxable earnings limit for 35 years. That is easier said than done. Of course, the gig economy makes it possible to pick up a side hustle without much effort, but there are only so many hours in a day, and working two jobs is far from appealing.
Very few retirees qualify for the maximum Social Security benefit
Only six percent of workers have income above the taxable limit in any given year, according to the Social Security Administration. That means the vast majority of retirees will not qualify for the maximum Social Security payout. But current workers can still benefit from the actions discussed in this article: delaying benefits beyond FRA, spending at least 35 years in the workforce, and maximizing earnings.
Checking any of those boxes will result in a bigger Social Security benefit, even if it's not the biggest Social Security benefit.
