Social Security was never intended to be anyone's sole source of income in retirement. But for a handful of people, it can be a significant one. A few lucky retirees are cashing monthly checks of the maximum possible amount of $4,555.
How did they do it, and how can you do the same? Here's a rundown of the three key things they did differently than most. Even if you can't quite match their inputs, getting as close as you can to them will make your eventual Social Security checks close to theirs as well.
1. Work 35 full calendar (tax) years
There's no getting around this one -- if you want take home $4,555 per month once you claim benefits, you absolutely must work at least 35 years. That's because the Social Security Administration's calculation of your retirement payments is based on your 35 highest-earning years, based on your reported taxable income. Even if you were well paid for 34 years, you won't be able to max out your Social Security benefit.
That being said, there's a detail here that must be explained. That is, working more than 35 years won't necessarily be of any additional benefit by virtue of earning wages and paying FICA (Federal Insurance Contributions Act) taxes on them for a longer period of time. The Social Security Administration stops counting altogether once it identifies your best 35 inflation-adjusted years.
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And that's another important detail to draw out -- your historical earnings are adjusted for inflation to fairly figure out which of your years are truly your 35 best ones. After all, what was considered a high salary back in 1993 wouldn't be all that high in 2023's dollars.
On that note...
2. Earn the inflation-adjusted equivalent to 2023's $160,200
Did you know there's a cap on the amount of your income that's taxed for Social Security purposes? Of course, you wouldn't get credit for any amount of FICA taxes paid beyond that amount anyway. That's because in the same sense there's a cap on your future monthly payments, there's also a limit to how much of your earnings are put into the fund in your name. This year, Social Security stops taking money out of your paycheck for any work-based earnings above $160,200.
The ceiling wasn't always that high. Like Social Security payments themselves along with wages and all other costs, this cap is regularly adjusted for inflation. Last year it was $147,000. In 2000, the taxable ceiling was $76,200. In 1980, the number was $25,900. You get the idea. If you're looking for $4,555 per month in retirement income now, you'll needed to have reached that earnings ceiling for at least 35 years, maxing out your contributions to the pool of funds during the year in question.
3. Don't claim benefits until you're 70 years old
Last but not least, while your official full retirement age is either 66 or 67 years of age (depending on when you were born), waiting until then to start collecting benefits won't land you monthly checks of $4,555. The best any 66-year-old retiree can do initiating their monthly payments this year is $3,627. The only retirees scoring the biggest possible payments are those who waited until they turned 70 to claim benefits.
Why's that? Think about it. The person who claims retirement benefits three to four years sooner than a 70-year-old claims them will be drawing from Social Security's pool of funds for three to four additional years. With the Centers for Disease Control reporting an average U.S. life expectancy of 76.4 years while the most common age of death for people reaching their elderly years is -- incredibly -- well into the late-80s, the Social Security Administration must adjust its payouts to be sustainable as well as fair.
Doing something is always better than doing nothing
If you know you won't be eligible for the maximum monthly benefit, don't sweat it. Most people won't, just like most people who've already retired aren't. This year's average Social Security monthly check is a much more modest $1,827. Just because you won't be receiving the biggest possible Social Security payments, though, doesn't mean you shouldn't seek to maximize your eventual benefit.
It also doesn't mean you can't build a healthy nest egg for yourself outside of Social Security altogether. Start with an individual retirement account, and if you're able to save more, invest for your future using an ordinary brokerage account. You may find these savings end up producing even more income than Social Security ever could for you.
