The maximum monthly benefit that Social Security will pay this year is $4,555. But rest assured that most seniors are getting much smaller benefits. And chances are, you will, too, when it's your turn to start collecting.
But that's not something that should bother you. And if you save really well during your working years, it probably won't.
The maximum benefit is really hard to snag
To receive the maximum monthly benefit Social Security will give out, you have to do three things:
- Work at least 35 years.
- Delay your Social Security filing until age 70.
- Earn an income that meets or exceeds the wage cap for 35 years.
The first one is pretty easy. If you enter the workforce in your 20s, you could put in 35 years by the time your late 50s roll around. That 35-year requirement even allows for a career break, whether it's a sabbatical or a period of time when you opt to stay home and raise kids.
Delaying Social Security until age 70 is also doable. You might have to work longer, but it may also be fully within your control.
It's earning an income that meets or exceeds the wage cap that's the tricky part here. Each year, there's a maximum amount of income that's subject to Social Security taxes. This year's wage cap is $160,200, and it's likely to keep going up in time.
Clearly, that's not a small number. And if you're not in an ultra-high-paying field, a wage that large might not be in the cards for you.
As such, you might have to accept the fact that the maximum Social Security benefit isn't something you'll be eligible for. But if you save enough for retirement, that won't be an issue.
Start early and invest wisely
Building up a solid retirement nest egg doesn't have to be a harrowing process, and it doesn't have to mean sacrificing every single luxury to be able to fund your 401(k) or IRA. If you begin saving at a young age and invest your savings wisely (namely, by going heavy on stocks), you could be pleasantly surprised at how much wealth you're able to accumulate.
Over the past 50 years, the stock market has rewarded long-term investors with an average annual 10% return. But let's be a bit more conservative and assume an 8% return in your retirement portfolio.
If you contribute $500 a month between the ages of 27 and 67, you'll end up with a nest egg of more than $1.5 million. And at that point, you may not care that you're only getting $2,200 and change from Social Security instead of a monthly benefit that's twice as large.
Even if you try hard to score a higher Social Security benefit, you might not end up eligible for the max. So rather than focus on that, work on things you can control, like pumping money into your retirement plan and making sure you're investing in a manner that's likely to lead to steady growth.