Seniors are often warned not to retire on Social Security alone, since those benefits will only replace about 40% of the average worker's wages. But some lucky recipients this year may be in line for a monthly benefit of $4,873. That might be roughly the equivalent of what you're making now with a full-time job.
To be clear, it's really a very small percentage of seniors who end up with $4,873 a month in Social Security. Most beneficiaries don't get anything close to that amount -- and there's a reason for that.
Image source: Getty Images.
It's a matter of wages
There are three factors that go into calculating your monthly Social Security benefit:
- The number of years you work
- The wages you earn during your career
- The age at which you claim benefits
Social Security benefits are based on your 35 most profitable years of earnings. So it's good to aim for at least that many years with an income on record to set yourself up with more money from the program in retirement.
Meanwhile, your Social Security filing age will determine how much of a benefit you get. If you sign up at full retirement age (FRA) on the nose, you'll get the exact monthly payday you're eligible for based on your personal wage history. FRA is either 66, 67, or somewhere in the middle.
If you sign up prior to FRA (you can file as early as age 62), you're generally accepting a reduced monthly benefit for life. And if you delay your filing beyond FRA, you can give your monthly benefit a permanent boost. Age 70, however, is when that financial incentive runs out, so there's no sense in delaying your claim beyond that point.
You may push yourself to work 35 years for a higher Social Security benefit. You may also decide to file at age 70 to achieve the same goal.
But remember, there's another factor that dictates how much money Social Security pays you each month -- the wages you earn. And if they're not very high, you won't get the program's maximum monthly benefit.
What does "very high" mean? You need a 35-year work history where your income meets or exceeds the Social Security wage cap to get the program's highest possible monthly benefit. This year, the wage cap is $168,600. While that cap is adjusted annually for inflation and wage growth, it's a large number no matter how you look at it.
As such, even if you put in 35 years in the workforce and delay your Social Security filing -- which are things you can control, to some degree -- if you're not in a high-paying field, the maximum monthly Social Security benefit will just plain be off the table. But actually, that doesn't have to be such a terrible thing.
Don't spin your wheels -- focus on savings instead
The idea of getting $4,873 a month from Social Security might seem nice. But you should also know that as of January 2024, the average beneficiary was only getting $1,907 a month -- a far cry from $4,873.
If you know your wages aren't close enough to score you Social Security's maximum monthly benefit, don't waste your time or energy chasing it. Instead, focus on managing your expenses wisely so you're able to carve out money for retirement savings year after year.
Let's say you earn $60,000 a year, which is slightly more than $4,873 a month. You may not be able to sock away 25% of your income for retirement. But if you're able to save 10%, it could go a long way.
Imagine you contribute $500 a month to a 401(k) or IRA over a 35-year period. Let's also say your investments deliver an 8% average annual return during that time, which is a notch below the stock market's average. At that point, you're looking at retiring with a little more than $1 million.
Meanwhile, if you decide to withdraw from your savings at a rate of 4% per year, which many financial experts continue to recommend, you'll have $40,000 of income out of your nest egg alone. Even if Social Security only ends up paying you $1,907 a month like the average beneficiary as of January, that's an annual income of almost $63,000 -- or a little more than 100% of the income you're used to living on today.
There's absolutely nothing wrong with taking steps to boost your monthly Social Security benefit, like delaying your filing for a higher payday. But don't stress yourself out trying to snag the program's maximum monthly benefit. Instead, focus on building a solid nest egg to set yourself up for the comfortable retirement you deserve.
