Social Security is a retirement safety net, though some recipients do get more safety than others. For those claiming Social Security in 2022, the monthly benefit can be as high as $4,194. That's a safety net worth $50,328 annually, or just a shade less than the average worker's salary.
But don't take that to mean you need a smaller retirement savings balance. Only a small sliver of Social Security recipients will see a benefit that large. You could be in that sliver if you meet two requirements. As explained below, one requirement involves your income history and the other is your claiming age.
1. Income history
Social Security taxes your income up to a maximum threshold called the wage base limit. The limit usually changes every year, but it's $147,000 in 2022.
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To have a shot at the maximum Social Security benefit, your income must have been the same or higher than the wage base limit for a full 35 years. This means you've paid in the maximum Social Security tax annually for most, if not all, of your career.
The Social Security benefit formula automatically looks at the highest-paid 35 years on your work record. In theory, you could have a few low-income years plus 35 years or more of maxing out the wage base limit. In that scenario, the low-income years are disregarded and, ultimately, irrelevant.
Note that if you have fewer than 35 years on your earnings record, Social Security assumes zero income for the missing years. If you're in the 33rd or 34th year of your career, it's often worth delaying retirement to reach that 35-year mark. Even if you're not close to the wage base limit, removing years of zero income from your earnings average should raise your benefit noticeably.
2. Claiming age
The second requirement for earning the $4,194 maximum benefit is that you can't collect Social Security before age 70. This is because your benefit rises when you wait to receive it, but the increases max out at your 70th birthday.
If you claim earlier than age 70, your benefit will be something less than the $4,194 max. This is true even if you've exceeded the wage base limit for 35 years. Specifically:
- The 2022 max benefit is $3,345 if you claim at full retirement age (FRA) and you've met or exceeded the wage base limit for 35 years or more.
- The 2022 max benefit is $2,364 if you claim at age 62 and you've met or exceeded the wage base limit for 35 years or more.
As a general guideline, filing for Social Security at age 70 can increase your benefits by up to 32% vs. claiming at FRA. Claiming at age 62 can reduce your benefit by up to 30% vs. claiming at FRA.
Collecting your maximum benefit
To collect $4,194 monthly from Social Security, you need 35 years of income that's at least the same as the wage base limit. You also need to delay your benefits until your 70th birthday. Only a small percentage of Social Security beneficiaries can meet both requirements.
If you're not eligible for maximum Social Security income, you can still use the benefit formula to your advantage. The basic rules are: Work for 35 years or more and earn as much as you can to push your benefit higher.
You may also consider waiting to claim Social Security. This strategy might make sense if you are in good health and you can afford to wait for a higher benefit later.
