(Matthew Frankel, CFP®)
The maximum possible social security benefit in 2022 is $ 4,194 per year. month or $ 50,328 for the year. While this may sound like an excellent stream of inflation-protected retirement income, the reality is that very few Americans qualify for such large checks from the government program.
With that in mind, here’s an overview of the three criteria a person must meet to receive the maximum possible retirement benefit from Social Security, how much the average American really gets, and how you can use this knowledge to maximize your own social security. securing benefits.
How to get the maximum social security benefit
In order for a person to receive the greatest possible pension benefit from social security, all of these things must be true:
- You worked for at least 35 years in social security covered employment. Unlike many pension plans, which calculate your benefit based on your last few years of work, Social Security takes your 35 highest paid inflation-adjusted years into account and averages them together. If you have less than 35 years of work experience, zeros will be used in the calculation for the missing years.
- You have earned at least the maximum income that is subject to the social security payroll tax in all 35 of your highest earning years. For 2022, this threshold is $ 147,000, and it has increased with inflation over the years. Your maximum 35 years are indexed for inflation and the average to calculate your average indexed monthly earnings. So to maximize the average, it should be as high as possible in all the 35 years that are taken into account. Fortunately, many people will be working for significantly more than 35 years in total. If you do, you will get a little bit of leeway so you can escape some years of lower earnings from your benefit calculation.
- You have to wait until you turn 70 to start collecting benefits. Even for the high paid, this is typically a limiting factor. For each year you wait beyond your full retirement age (until you reach 70), your monthly social security benefit will be permanently increased by 8%.
As you might imagine, few retirees meet all three of these criteria. Most have at least 35 years of work experience. But the other two are far less common.
- In a given year, about 6% of workers earn more than the maximum income subject to social security payroll tax. Far fewer have earnings that exceed this level in all of their 35 highest earning years.
- Only 5% of men and 7% of women wait until they reach the age of 70 to receive their benefit. In fact, the most common age for Americans to apply for Social Security is 62 – the youngest age at which they are eligible to do so.
How much do you get from Social Security?
In March 2022, the average social security pension benefit was $ 1,665 per month. month – well below the maximum. The program is designed to provide a benefit that replaces about 40% of the typical American’s early retirement income. It is not intended to be sufficient as a person’s sole source of cash upon retirement.
The best place to get a personal estimate of your future benefit is to log in to your “my social security” account (and if you have not yet created one, you should) and see your most recent statement. Among other information, it will include an estimate of how much your benefit will be at full retirement age, as well as estimates of what you would receive if you required social security early or late, based on your actual work history.
How to maximize your own social security benefit
The bottom line is that while most retirees will not qualify for the maximum Social Security benefit, understanding how the benefit is determined puts you in a better position to maximize yours to the extent possible. For example, if you have only worked for 34 years and are considering retiring, it may pay to stay in your job for another year to avoid using a zero when calculating your life expectancy average. Or if you’re thinking of claiming Social Security at age 65, waiting for your full retirement age can increase your monthly checks by hundreds of dollars.
Social security is the only inflation-protected income stream that the majority of retirees want, so it’s smart to find out how much you can expect from it and to take steps to increase that benefit if you think you would Appreciate a little more reliable income after you retire.
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