Boosting your income during your working years isn't just a good thing from a bill-paying perspective. It could also be beneficial from a Social Security perspective.
If you earn a lot of money during your career, you may end up eligible for the maximum monthly benefit Social Security is able to pay. This year, that's $4,555.
But most seniors do not end up collecting the maximum monthly Social Security benefit. Rather, they get a lot less. And if you build yourself a nice nest egg, there's a good chance you'll end up just fine even if the monthly payday you get from Social Security is nowhere close to $4,555, or whatever the maximum benefit is the year you file.
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It's a hard thing to pull off
To claim the maximum monthly Social Security benefit, you have to:
- Work at least 35 years
- Delay your Social Security filing until age 70
- Earn the equivalent of the Social Security wage cap for 35 years
The first two items aren't so challenging. Many people start working in their 20s and retire in their 60s. Even if you take a couple of career breaks, there's ample opportunity to work for 35 years.
The second item is also something you can control, at least to an extent. Granted, if you encounter health issues that force you to end your career sooner than expected, you may not be able to delay your Social Security filing until your 70th birthday. But if you are able to work and are willing to do it longer, then filing at age 70 may be more than feasible.
It's that third point -- earning the equivalent of the wage cap each year -- that's a harder thing. The wage cap dictates how much of your income is subject to Social Security taxes, and it changes yearly. This year, it's $160,200, which is not a small number.
But most people earn a lower annual income than that. And even if you manage to have a number of years where your earnings meet or exceed the wage cap, you may not be able to pull that off for 35 years.
Don't worry if your benefit is lower
While the maximum Social Security benefit may be out of reach for you based on your earnings, or even based on another factor, the reality is that you can do quite well for yourself during retirement with a lower benefit. All you need to do is make sure you have at least one other solid income source to supplement your Social Security benefits with.
In fact, if you sock away $500 a month in a retirement plan over 35 years, and your investments generate an average annual 8% return, which is a bit below the stock market's average, you'll end up with a nest egg worth slightly more than $1 million. With that level of savings, you might enjoy a very nice lifestyle even if Social Security doesn't pay you as much as it might end up paying someone else.
All told, the typical senior on Social Security does not receive anywhere close to the maximum benefit the program pays. Rather than make that a point of concern, embrace your reality and do your best to build up a solid nest egg so you don't have to deal with financial worries during retirement.
