Many people strive to max out their Social Security income, but aiming to get every possible penny from the program might not be worth it for most.
The maximum monthly retirement benefit in 2024 is $4,873. Receiving that amount requires a long, highly paid career and a lot of patience. But if you're planning to rely on Social Security as soon as you stop working, you may find striving for the maximum monthly benefit isn't going to cut it.
Here's the unfortunate truth about receiving the maximum $4,873 Social Security benefit.
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You have to wait until age 70 to get it
While you can apply for Social Security retirement benefits starting at age 62, you'll have to wait until age 70 to receive the maximum possible monthly benefit.
Each month you wait to claim your benefits, the Social Security Administration will increase the monthly check it'll send you. Your payout is based on your primary insurance amount, which is the amount you'll receive at full retirement age. Full retirement age ranges from 66 to 67, depending on when you were born. Those born in 1954 or earlier reached full retirement age at 66. But the full retirement age increases by two months for each year someone is born after 1954 before maxing out at age 67 for those born in 1960 or later.
If you claim benefits before your full retirement age, you'll receive less than your primary insurance amount each month. For each month you wait beyond your full retirement age, the Social Security Administration will add 2/3 of a percentage point to your monthly benefit. That means 70-year-olds claiming Social Security this year received 32% more than their primary insurance amounts.
Here's some more bad news for those aiming to fully max out Social Security: Since the full retirement age is increasing, the maximum benefit isn't going to be worth as much relative to your primary insurance amount as it used to be.
It doesn't replace most of your income
Since receiving the maximum $4,873 monthly benefit requires you to earn a high income, it won't replace a significant percentage.
The minimum amount you had to earn to max out the Social Security contribution in 2023 was $160,200. A monthly benefit of $4,873 will only replace 36.5% of that amount. And even if you earned more than that, you still can only receive $4,873 per month.
The reason Social Security replaces relatively little of your income at this level is because it's a progressive program. Individuals with lower incomes will see a much higher percentage of their income replaced by Social Security in retirement. Those with higher incomes will see a lower percentage replaced.
If you weren't saving very much for retirement while earning such a high salary, you likely have some very high living expenses. Social Security alone won't cover them. You'll likely need some hefty 401(k), IRA, and brokerage balances to make up the difference.
The taxes can be a substantial burden
When you receive such a big Social Security check, it's hard to avoid paying high taxes.
The way the government taxes your Social Security benefits uses a metric called "combined income." Combined income is equal to half your Social Security benefits, plus your adjusted gross income, plus any untaxed interest income you received. If your combined income exceeds a certain threshold, a portion of your income gets taxed.
| Your Benefits Are: | If You're an Individual With | Or Married Filing Jointly With |
|---|---|---|
| Up to 50% Taxable | Combined Income > $25,000 | Combined Income > $32,000 |
| Up to 85% Taxable | Combined Income > $34,000 | Combined Income > $44,000 |
Table source: Author. Data source: Social Security Administration.
With a monthly benefit of $4,873, your combined income for 2024 would already total $29,238 before adding any other income. When you start adding income from retirement account withdrawals or capital gains on your investments, you'll likely make more and more of your Social Security income taxable.
What's more, you could find the marginal tax rate on certain tax strategies like Roth IRA conversions or capital gains harvesting makes them unfeasible while collecting such a large Social Security check. That's because each extra dollar in income from conversions or capital gains could also push an extra $0.85 of Social Security benefits into your taxable income. Some financial planners refer to this phenomenon as the Social Security tax torpedo.
While paying taxes on a high income isn't the worst thing in the world, it can still take a major chunk out of your retirement budget. So make sure you plan for taxes if you're planning to receive the maximum possible Social Security benefit.
