Most people begin thinking about retirement well before they reach it, and that's a good thing -- especially if those thoughts are about making sure their finances are in order. A solid financial plan is always important, but it's more crucial in retirement when income sources are usually limited.
One source of retirement income people rely on is Social Security. For some, Social Security is a supplemental source of income. For others, it's their only source.
In 2023, the maximum monthly Social Security benefit is $4,555. Unfortunately, though, not many people are eligible to receive it. Here's how to determine if you're on track for it.
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How your monthly Social Security benefit is determined
Social Security calculates your monthly benefit by taking a percentage of your average income during the 35 years when your income was highest (adjusted for inflation).
The wage base limit is an annual limit on how much of your income is taxed and used in Social Security calculations. The wage base limit in 2023 is $160,200, so no amount earned above that is taxed or considered for your monthly benefit.
To receive the maximum $4,555 monthly benefit, your average income must be the highest possible during the 35 years used in the calculations. This means your income must be, at minimum, at the wage base limit for each of those years. For example, if 2023 will be one of the 35 years included when calculating your Social Security benefit, you'll need to earn at least $160,200 to have a chance to receive the maximum $4,555 payout.
The wage base limit is adjusted for inflation each year, so you must earn the inflation-adjusted equivalent of $160,200 for at least 35 years to qualify. If 2022 and 2021 will be used in your calculations, you would have needed to earn $147,000 and $142,800 in those years, respectively.
More than your earnings matter
Your Social Security benefit is tied to your full retirement age, which is the age you become eligible to receive your full monthly benefits. It's one of the most important numbers to know regarding your Social Security.
Below are the full retirement ages based on your birth year:
| Birth Year | Full Retirement Age |
|---|---|
| 1943 to 1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or after | 67 |
Data source: Social Security Administration.
Your full retirement age is so important because it's the baseline that determines your benefits if you claim them early (as early as 62) or delay them (up until you turn 70). Claiming benefits early will reduce them the further away you are from your full retirement age, by up to 30%.
Delaying your benefits past your full retirement age will increase them by two-thirds of 1% monthly (8% yearly) until you're 70. You can keep delaying after 70, but the benefit won't increase any further.
To receive the maximum $4,555 benefit, you would need to meet the minimum income requirements and delay benefits until you reach 70. If you met the income requirements and took benefits at your full retirement age, the maximum payout would be $3,627.
Checking your earnings record
To get an accurate idea of your Social Security benefit, you should check your earnings record. To do this, create an account on the Social Security website. Once your account is created, you should be able to find a record of all your annual earnings.
It will also show you your projected monthly benefit based on when you plan to claim (early, at full retirement age, or late). The vast majority of people's projected benefit is well below the $4,555 maximum. Only around 6% of people have income above the wage base limit each year, so the number of people who earn above it for 35 years is drastically less.
Don't be discouraged if you're not currently eligible for the maximum benefit; use that to reinforce the importance of having multiple sources of retirement income.
