Earlier this month, the Social Security Administration announced a 3.2% cost-of-living adjustment (COLA) for 2024. That's going to bump the average benefit up from $1,848 per month for retired workers to $1,907 per month, a $59 increase.
But some people are going to get a lot more than that. In 2023, the highest-earning Social Security beneficiaries get $4,555 per month. And their checks are set to grow even further in 2024. Below, we'll look at just how much they'll get and what the largest benefit will be next year.
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What's the maximum Social Security benefit in 2024?
The maximum Social Security benefit in 2024 will climb to $4,873 per month. That comes out to $58,476 per year. That's almost more than the average household headed by an adult 65 or older spent all year in 2022.
Now, if you're a math whiz, you might add 3.2% to the $4,555 maximum for 2023 and find that something doesn't add up. That only gives you about $4,700 -- and that is how much those receiving $4,555 checks in 2023 will get in 2024. But that's not the maximum benefit next year because the Social Security benefit formula changes annually.
The first step in the process is calculating your average indexed monthly earnings (AIME). The government determines this by looking at your income from your 35 highest-earning years, adjusted for inflation.
The adjustments for inflation are known as wage indexing. You take your actual earnings for that year and multiply it by an index factor based on the National Average Wage Index. You use the index number from the year you turned 60 (2021 for those who turned 62 in 2023) and divide this by the index for the year of your earned income. Then, you multiply it by your actual income for that year.
Here's an example. Say you earned $30,000 in 2001 and you turned 60 in 2021. You'd calculate your indexed earnings for 2001 by doing the following:
- Take the index value for 2021 ($60,575.07) and divide it by the index value for 2001 ($32,921.92).
- This gives you an index factor of 1.840.
- You multiply this index factor by the $30,000 you earned in 2001 to get indexed earnings of $55,200.
You repeat these steps for every year you earned income and add the 35 highest-earning indexed years together and divide them by 420, the number of months in 35 years. This is always the divisor, even if you've worked fewer than 35 years. The result is your AIME.
Since average wages and the maximum income subject to Social Security taxes rise over time, people who apply for Social Security today often have higher AIMEs than those who applied in earlier years. In 2023, the maximum AIME is $9,628, but in 2024, it will be $9,990.
The larger maximum benefit in 2024 is also due to changes in the calculation of your primary insurance amount (PIA). Much like with the AIME calculation, you use the formula that was created in the year you turned 60. Here's what the 2023 formula looks like:
- Multiply the first $1,115 of your earnings by 90%.
- Multiply any amount over $1,115 up to $6,721 by 32%.
- Multiply any amount over $6,721 by 15%.
- Total your results from the three steps above and round down to the nearest dollar.
This formula remains almost the same each year. The only thing that changes are the bend points -- $1,115 and $6,721 in our example. These increase over time, and this can also contribute to new beneficiaries having larger PIAs, and consequently larger benefits, than those who signed up earlier.
This is how those signing up in 2024 for the first time could potentially get a larger monthly benefit than those claiming the 2023 maximum benefit, who get a 3.2% COLA for next year.
Why you probably won't get the maximum checks next year
You might hope to rake in the largest possible checks next year, but that's not likely. There are three things you must do to qualify for the largest checks:
- Work at least 35 years so you have no zero-income years in your AIME calculation.
- Earn the maximum income subject to Social Security taxes in all 35 of those years.
- Wait to sign up until you turn 70 to earn the maximum delayed-retirement credits.
The first one is pretty self-explanatory, so we'll touch on just the last two. Not everyone realizes this, but high earners don't pay Social Security taxes on all their income; there's an annual cap. In 2023, you pay taxes on only the first $160,200 you make. This will rise to $168,600 in 2024.
In previous years, this ceiling was lower, but it still represented an equally daunting challenge. Most people just don't make enough to rake in the maximum checks.
As for the last part, there's an additional step in the Social Security benefit calculation we haven't talked about. Above, we discussed how to get to your PIA. But you only get this amount if you sign up at your full retirement age (FRA). This is somewhere between 66 and 67, depending on your birth year.
For those who sign up at other ages, the government adjusts your benefit up or down accordingly. When you sign up before your FRA, your checks shrink by 5/9 of 1% per month for up to 36 months. If you claim more than 36 months early, you lose an additional 5/12 of 1% per month. That means if you apply right away at 62, you only get 70% of your PIA per month if your FRA is 67 or 75% if your FRA is 66.
You can also delay benefits past your FRA and accumulate delayed retirement credits at a rate of 2/3 of 1% per month until you reach 70. That gives you a maximum of 124% of your PIA per month if your FRA is 67 or 132% if your FRA is 66.
So in addition to earning boatloads of money your entire career, you would also have to wait a long time to sign up for benefits if you wanted the maximum check. If you're just reaching your FRA in 2024, the most you can take home is $3,822 per month. And if you apply at 62, the most you can get is $2,675 per month.
But there's no reason to be bummed if you can't claim the maximum Social Security checks next year. If you're already claiming, you'll still get a boost in 2024. And if you haven't applied yet, spend some time figuring out when you plan to apply so you can maximize your lifetime benefit.
