In 2021, the maximum Social Security benefit retirees can receive is $3,895. But will your benefit be anywhere near this amount?
Chances are, your monthly Social Security income will fall far short of the maximum benefit, but here’s how to tell if you’re within spitting distance of receiving this significant amount of Social Security income.
Will your benefits be close to the maximum?
To make sure your Social Security benefit comes close to the maximum benefit, you need to do three things:
- Work at least 35 years.
- For 35 years, earn a wage that is equal to or greater than the “baseline wage limit”.
- Start your Social Security checks at age 70.
Working for 35 years is crucial because the Social Security Administration calculates your standard benefit by giving you a percentage of the average wage in the 35 years when your income was highest (after adjusting for inflation).
If you want the highest possible standard benefit, you therefore need the highest possible average wage. And if you’re less than 35 years old, you’d pull your average wage down because some years of $0 earnings would be factored in when it’s calculated.
Earning an income at least equal to the wage base limit is also key to getting the highest Social Security check possible. See, every year the Social Security Administration sets the wage base limit, which is the maximum wage that is subject to Social Security tax.
This wage base limit is Why there is a cap on the average wage that can be used to determine your benefit. Without it, those who made millions of dollars a year would have a huge average wage, and thus a huge advantage. If you earn less than the wage base limit in one of the 35 years used to calculate your benefit, you will not have the highest possible average wage and therefore also not the highest possible standard benefit.
Finally, you must start the Social Security checks at 70 to get the maximum benefit of $3,895. That’s because your standard benefit increases for each year you wait to claim it after 70 years. So you need:
- The maximum possible average wage to receive the highest possible standard benefit
- The maximum number of deferred retirement credits, earned up to 70, to bring your standard benefit to the highest possible level.
Why do so few people maximize their Social Security income?
Unfortunately, most people don’t come close to earning the maximum Social Security benefit because they fall short in one or more of the three steps it takes to earn it.
Look, a lot of people can’t work for 35 years because they have family obligations or can’t find a job all that time. And many people can’t delay claiming Social Security checks until 70 either. It’s common to have to (or want to) apply for benefits before then to enable retirement.
Finally it’s right more difficult to earn the maximum taxable wage (or more) for 35 years, because the limit of the wage base is very high. In 2022, you must earn $147,000 or more to ensure that your earnings equal or exceed the maximum taxable wage. Most people don’t earn that much. And you’d have to earn the inflation-adjusted equivalent of that big income for 35 years, which is even harder.
The good news is that while you may not be able to earn the maximum Social Security benefit of $3,895, you can still increase your own benefit by taking steps to increase your income or delay the amount of time you claim your checks. This may be worth it if Social Security will be a major source of income in your later years.
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