The maximum amount that an individual could possibly collect from Social Security this year is $46,740. That would probably be enough to cover some people's annual retirement expenses in their entirety. But very few retirees will be lucky enough to receive the maximum $3,895 monthly Social Security benefit. Doing so requires both strategic planning and a high-salary career during most of your working years.
Below, we'll look at precisely what it takes to earn the maximum Social Security benefit, and what you can do during your working years to boost the size of your monthly checks.
What does it take to get $3,895 per month from Social Security?
Your Social Security benefit calculation consists of two parts. The first calculates your standard benefit based on your average indexed monthly earnings, or AIME. The second part involves calculating your monthly benefit based on the age you are when you sign up for benefits.
Part 1: Calculating your AIME
The Social Security Administration starts by considering your income during your 35 highest-earning years. For those who haven't worked at least 35 years, it looks at your income during all the years you did work. Each year's figure is multiplied by an indexing factor to adjust it for inflation, and then all those numbers get added up. That sum is divided by 420 — the number of months in 35 years — to get your AIME.
Notably, your AIME calculation only factors in the income that you paid employment taxes on — and there's a yearly cap on that figure. In 2021, it's $142,800. If you earn income above that amount this year, you won't pay wage taxes on it — but that higher income also won't raise your eventual Social Security benefits any further.
In order to get the highest AIME possible, you'd have to earn the equivalent of $142,800 per year — or $11,900 per month — in 2021 dollars for at least 35 years. That goal is entirely out of reach for most people.
Part 2: Calculating your base benefit at full retirement age
Once it has determined your AIME, the government enters it into the Social Security benefit formula. The 2021 benefit formula looks like this:
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 up the results from the three steps above and round down to the nearest $0.10.
The $996 and $6,002 figures listed above are “bend points.” These change from year to year, but those are the ones that apply in 2021.
Astute readers may notice that plugging the current maximum AIME of $11,900 into the above formula leaves you with $3,383, not $3,895. There are two reasons for that.
First, the formula used in your Social Security benefit calculation is based on whatever the bend points were in the year you turned 62, regardless of when you actually sign up. So the formula listed above will only apply to individuals born in 1959 who turn 62 in 2021. Individuals born in other years will use formulas with different bend points.
The other reason you won't get $3,895 if you plug the maximum AIME into the above formula is that it's only part of your Social Security benefit calculation. The next steps are outlined below.
Part 3: Calculating your actual benefit based on the age at which you claim Social Security
The government uses the above formula to calculate your benefit at your full retirement age (FRA). That was 66 for those born between 1943 and 1954. Then, it rises by two months every year thereafter until it reaches 67 for those born in 1960 or later. But you don't have to wait until you reach your FRA to start taking your benefits.
You can sign up for Social Security as soon as you turn 62, but you'll receive smaller checks every month if you do. For every month you claim benefits before your FRA, your benefit decreases in the following way:
5/9 of 1% per month for each month you claim early, up to 36 months;
5/12 of 1% per month for each additional month you claim early beyond the first 36 months.
Those fractions of a percent add up. Someone with an FRA of 67 will only receive 70% of their “full” benefit per check if they sign up when they turn 62. Specifically, they would lose 5/12 of 1% per month for the two years between their 62nd and 64th birthdays (24 months times 5/12 of 1% = 10%), then 5/9 of 1% per month for the 36 months between 64 and 67 (36 months times 5/9 of 1% = 20%).
If you want larger monthly Social Security checks, you can also delay benefits past your FRA. Every month you postpone claiming beyond that point increases your benefit by 2/3 of 1% until you reach the maximum benefit at 70. That's 124% of your full benefit per check if your FRA is 67 or 132% if your FRA is 66.
In order to claim the maximum $3,895 monthly Social Security benefit, you must not only earn the maximum AIME, but also delay taking your benefits until you turn 70.
However, waiting that long to claim Social Security is not financially feasible for everyone, and it's not always wise. If you don't expect to live past your 70s, you'll get more out of the program by applying for benefits early.
How can you get the most out of Social Security?
While relatively few people will have any chance to qualify for the maximum Social Security benefit, most of us can put the principles above into practice to help earn the largest monthly benefits possible. Try these tips:
Work for at least 35 years to avoid zero-income years that will reduce your monthly benefits.
Do what you can to increase your income today because this will boost your AIME.
Choose the age at which you start collecting Social Security carefully, taking into consideration your financial situation, health, and the effect of that timing on your benefit.
If doing all the math yourself doesn't appeal, the government has a tool to help you. To make use of it, start by going to the SSI website and creating a my Social Security account. This will allow you to see a record of all the income you've paid Social Security taxes on thus far. The website also features a benefits calculator that enables you to explore what your monthly benefit might be down the road, depending on when you claim it and your average annual income.
You can manipulate the variables to play around with different scenarios, and use the results to come up with a plan for when you want to claim Social Security. That doesn't have to be set in stone, but it can help you estimate how much you'll get from the program and, consequently, how much you'll need to save on your own for retirement.
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