Social Security is not meant to be your only source of retirement income, or even your biggest source of retirement income. But if you're forced to fork over a piece of your earnings (in the form of Social Security taxes), you may as well maximize your eventual Social Security benefits. The maximum monthly Social Security check anyone can receive right now, by the way, is $4,555.
Here's what it takes to secure Social Security payments of this size.
Good news and bad news
Social Security retirement benefits are determined by a mix of factors, including your age, how much you've worked, and of course, how much you earned during your working years. In all three cases, "more" leads to bigger monthly payments.
The good news is, there are limits to how much of your income is counted -- and taxed -- toward your eventual monthly benefits. As it stands right now, the Social Security Administration stops taking out Social Security taxes from your paycheck when doing so would no longer add to your future monthly checks.
The bad news? For 2023, the SSA still taxes up to $160,200 of your yearly wages. This means for about four-fifths of the nation's workers, their entire income is subject to Social Security taxes. That wasn't always the number, mind you. Last year's figure was $147,000. The year before that it was only $142,800. In 2020, the cap stood at $132,900. For perspective, 2000's maximum taxable earnings were $76,200. In 1980, the number was $25,900.
You get the idea -- these increases are just part of a long chain of inflation-driven rising thresholds going all the way back to 1937, when it was set at a then-high of $3,000. Just bear in mind you would have had to reach or exceed every year's then-maximum earnings level for a lot of years to score the biggest-possible checks today.
Plan on working for at least 35 years
For the record, you can work as much or as little as you want in life. If you want the maximum possible Social Security benefit in retirement, though, your annual wages must meet or surpass the SSA's taxable income cap in at least 35 years.
That seems like a lot of working years. And at one point in time, it was. But with average life expectancy in the U.S. now nearing 80 years of age -- and with better healthcare keeping people feeling good for longer -- a 35-year career isn't unusual.
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Or, think about it like this: A 25-year-old could work for 40 years and retire at the still-youthful age of 65. That's Social Security's so-called full retirement age (the year at which your full retirement benefits can begin being collected) for people born before 1938. For people born after 1959, full retirement age is ratcheted up to 67.
And the Social Security Administration helps you as much as it can on this front. The calculation of your monthly benefits check isn't based on your last 35 working years. Rather, it's based on the 35 years you were paid (relatively) the most. A few low-earning years for anyone who worked more than 35 years won't penalize you.
Wait as long as possible to start collecting
Finally, although you're technically considered to be at full retirement age before then, anyone collecting the maximum Social Security check of $4,555 will have to hold off beginning those retirement benefits until 70 years of age to maximize their monthly payment. And the upside of doing so can be surprisingly big.
Just for a little perspective (and all other things being the same), opting to start receiving benefits at the age of 66 rather than 70 will reduce your potential payment from $4,555 to $3,627. Choosing early retirement at the age of 62 would leave you with a maximum monthly benefit of only $2,572. The differences reflect the different lengths of time you'll likely be drawing a monthly check from your personally allotted funding.
Of course, weigh the upside against the downside. Don't put yourself in an extremely difficult or strained financial position for what may only be a few extra hundred bucks per month. At the other end of the spectrum, there's no point in waiting to start drawing your monthly checks until after you're 70 years old. Doing so doesn't increase the size of your benefit.
