Social Security is one of the best social programs the U.S. offers. After paying Social Security taxes for decades, retirement is a chance for people to reap the rewards of it on the back end. For some people, Social Security is supplemental income in retirement. For many others, it's their only retirement income.
The range of monthly Social Security benefits is large, as it's based on many different factors. In 2023, the maximum monthly benefit someone can receive is $4,555. While receiving that amount sounds enticing, it's not likely for most people.
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How Social Security calculates your benefits
Social Security calculates your monthly benefit by taking a percentage of your average income during the 35 years when your earnings were highest. Yet, not all income is considered. Only income up to a certain threshold, known as the wage base limit, is taxed and used in the calculations each year.
In 2023, the wage base limit is $160,200, meaning any income earned above this won't be considered when calculating your monthly benefit. To be eligible for the $4,555 maximum monthly benefit, your average income over the 35 years used in the calculation must be at least the wage base limit.
Since the wage base limit adjusts annually to account for inflation, you'd need to earn the inflation-adjusted equivalent of $160,200 for at least 35 years. For example, if the past five years will be included in your calculations, here's how much you would've needed to earn:
- 2022: $147,000
- 2021: $142,800
- 2020: $137,700
- 2019: $132,900
- 2018: $128,400
If your yearly income was below those thresholds at any point, it would cancel your chance of earning the maximum monthly payout.
The role your full retirement age plays in deciding your benefit
Your full retirement age (FRA) is the age when you're eligible to receive your full Social Security payout. It's also the baseline to calculate your benefits if you take them early or delay them past your FRA.
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Your FRA is when you'll receive your full monthly benefit, but you don't have to claim benefits then. You can claim benefits as early as age 62, decreasing the monthly payout based on how far away from your FRA you are. People whose FRA is 67 and who claim at 62 will have their monthly benefit reduced by 30%.
You can also delay retirement benefits past your FRA, increasing them by 2/3 of 1% monthly (8% annually) until age 70. Delaying benefits past 70 won't increase them any further, so there's no reason to do so.
To qualify for the maximum $4,555 benefit, you'll need to meet the minimum income requirements and delay benefits until you're 70. Doing one without the other won't cut it. If you hit the income requirements and claim benefits at your FRA, the maximum payout would be $3,627. At 62, the maximum is $2,572.
Stay up to date on your earnings record
The best way to get an idea of your monthly benefit is by checking your earnings record on the Social Security website (SSA.gov). Your earnings record contains all your annual earnings, as well as your projected Social Security benefit based on when you claim.
Maximum benefit aside, checking your earnings record is good for planning your retirement income and helping you decide when claiming makes sense for you.
When you check your earnings record, there's a good chance your projected benefit will be less than the maximum. The overwhelming majority of people's benefits are. Social Security says only around 6% have income above the wage base limit, so imagine how many less have that for 35 years. Only one in five people are projected to earn over the wage base limit in at least one year.
By no means is this to say that you won't or can't qualify for the maximum benefit; plenty of people still do. However, it's not common.
You might not be able to control how much you earn, but you can control how you prepare financially for retirement. If you're a ways from retirement, use this as an opportunity to go back to the drawing board and ensure you're still on track to have the retirement you envision for yourself.
