Social Security provides income to more than 67 million older Americans, survivors, and disabled workers and their families, with about three-fourths of recipients being retired workers. As of November 2023, the average retired worker receives $1,845 per month, or $22,140 per year, from Social Security.
Americans who earn relatively high salaries throughout their careers can get significantly more than the average -- even if they choose to retire early. But if a high earner can wait as long as possible to start collecting Social Security benefits, you might be surprised at how much of a difference it can make.
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How to max out Social Security
I won't go through the entire Social Security formula here (although you can read our thorough discussion about it if you'd like). But the main idea is that Social Security is based on a formula that takes your earnings from every year you've worked into consideration. Here's how it works:
- Your earnings for every year in which you worked in Social Security-covered employment (up to each year's Social Security taxable maximum wages) are indexed for inflation.
- The highest 35 inflation-adjusted years are averaged together. If you've worked for less than 35 years, zeros will be used in the formula for the missing years.
- This average is divided by 12 to produce your average indexed monthly earnings, or AIME.
- Your AIME is applied to a formula that determines your initial Social Security benefit.
So, in order to max out the Social Security formula, you'll need to earn more than the annual Social Security taxable maximum (also known as the "wage base") in at least 35 separate calendar years.
Waiting makes a big difference
Although you can max out the Social Security formula by having a high income in at least 35 different years, the age at which you claim can make a big difference.
Specifically, the Social Security formula calculates what your initial benefit will be if you retire at exactly your full retirement age. For people born in 1960 or later, Social Security full retirement age is 67. However, you can choose to start collecting Social Security as early as age 62 or as late as age 67, effectively giving you an eight-year window in which to start getting your monthly payments.
The maximum possible Social Security benefit in 2023 at full retirement age is $3,627 per month. However, if you claim Social Security at age 62, as early as possible, the maximum possible is $2,572 per month -- or $12,660 less per year.
On the other hand, if you maxed out the Social Security benefit formula and chose to wait until age 70 to start collecting benefits, the maximum would be $4,555 per month, or nearly $55,000 per year. That's $1,983 more per month than a high earner who starts taking Social Security at 62.
It's also worth noting that due to cost-of-living adjustments, the figures are rising for 2024. In 2024:
- The maximum Social Security benefit at age 62 is $2,710 per month ($32,520 per year).
- The maximum at age 67 is $3,911 per month ($46,932 per year).
- The maximum possible benefit at age 70 is rising to $4,873 per month in 2024 ($58,476 per year).
The key takeaway
Of course, not everyone maxes out their Social Security taxable income every year. In any given year, about 6% of workers have earnings greater than the taxable maximum, and far fewer achieve this level of income in 35 separate years. Plus, it might not be practical (or necessary) to wait until you're 70 to start collecting your benefit.
However, the point is to get you thinking about the two main factors that determine your Social Security benefit so you can make smart choices when it comes to your retirement income planning. And seemingly small changes can make quite a difference. For example, claiming your Social Security at age 68 versus age 67 could mean about $1,770 in additional inflation-protected retirement income per year in perpetuity.
