How does a guaranteed $3,895 per month in Social Security benefits sound? That's the cushy supplement a few lucky seniors can expect to receive from Social Security when they sign up.
But you won't end up with a benefit this large by chance. If you want the biggest possible Social Security checks, you first have to understand how the government calculates your benefit, and then you have to put that knowledge to work for you.
How the Social Security Administration calculates your benefit
The Social Security Administration (SSA) breaks down your benefit calculation into a few parts. First, it figures out your average indexed monthly earnings, or your AIME. That's a complicated way of saying the average amount of money you earned over your 35 highest-earning years, with adjustments for inflation.
The SSA keeps track of how much money you've earned and paid Social Security taxes on every year and stores this information in your earnings record. You can view yours by creating a my Social Security account. When you sign up for benefits, the SSA looks for the 35 years where you earned the most, adjusted for inflation, and totals up these values. Then, it divides the total by 420 — the number of months in 35 years — to get your AIME. For example, someone who earned $50,000, adjusted for inflation, every year for 35 years would have an AIME of $4,167.
It's worth noting that the amount on which you've paid Social Security taxes and your income for the year aren't always the same. In 2021, you only pay those payroll taxes on the first $142,800 you make. You don't pay Social Security payroll taxes on anything over this amount, so it won't help you increase your Social Security benefits any further.
Once the SSA has calculated your AIME, it plugs it into a formula. Here's the formula for 2021:
Multiply the first $996 of your AIME by 90%.
Multiply any amount over $996 up to $6,002 by 32%.
Multiply any amount over $6,002 by 15%.
Add the results from the steps above and round down to the nearest dollar.
Using our example of the $4,167 AIME above would result in a monthly benefit amount of $1,911 per month. But that's if you claimed at your full retirement age (FRA). That's somewhere between 66 and 67, depending on your birth year.
You can sign up as early as 62. Those who don't sign up right at their FRA will see their benefit amount adjusted by another formula.
Every month you claim benefits before your FRA reduces your checks slightly. If you sign up right away at 62, you'll only get 70% of the benefit you would've gotten if you'd waited until your FRA of 67 to claim. If your FRA is 66, you'd get 75% of your scheduled benefit if you started claiming at 62.
You can also delay benefits, and your checks will increase up until you hit your maximum benefit at 70. That's 124% of the amount you're entitled to at your FRA if your FRA is 67, or 132% if your FRA is 66.
How to claim the maximum Social Security benefit
Now that we understand how the government calculates Social Security benefits, it's easy to see what steps you'd have to take to get the maximum $3,895 benefit.
First, you'd need the highest AIME possible. That means earning the equivalent of at least $142,800 in today's dollars in at least 35 years. Remember, income over this amount isn't subject to Social Security taxes and has no effect on your benefit.
Then, you'd have to delay claiming until 70, when you qualify for your largest possible benefit. That means living off personal savings until then, which isn't always a wise move. If you don't think you'll live very long, you'll probably get more money by starting early and claiming what you can during your lifetime than you'd get by delaying.
Reaching your maximum benefit
If you're looking at this information and thinking it's impossible for you to reach that maximum benefit, you're not alone. While it's easy enough to understand how to get there, actually doing it is another story. Only a lucky few will ever reach this amount.
But the tips above are still useful, even if you make far less. Working hard to maximize your earnings, working for at least 35 years, and delaying benefits if it makes sense for you are all good strategies that can help you reach your maximum Social Security benefit, whatever that amount may be.
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