Seniors on Social Security don't all collect the same amount of money each month. Rather, your monthly benefit will hinge on different factors. Those include:
The age at which you sign up for benefits
What your wages looked like during your 35 most profitable years in the labor force
In 2022, the highest monthly Social Security benefit you can collect is $4,194 a month. At first glance, that may seem like a lot of money. But in reality, if you qualify for that benefit, it may not end up doing you much good by itself.
Why a $4,194 monthly benefit might fail you
To qualify for the maximum monthly benefit Social Security will pay out, you'll need to have earned a very high wage for at least 35 years. Specifically, your wages will need to have matched the annual wage cap for Social Security purposes.
If you're a higher earner, you may have noticed that you don't pay Social Security taxes on all of your income. Rather, there's a wage limit for tax purposes that changes from year to year. Right now, it's $147,000. Last year, it was $142,800.
If you're able to snag the maximum monthly Social Security benefit, it amounts to an annual income of roughly $50,000. But as a general rule, retirees are told to try to replace 70% to 80% of their annual income to maintain a decent standard of living. So if you fixate on the maximum Social Security benefit and don't make an effort to build a solid amount of savings, you may find yourself cash-strapped during retirement, despite being in line for a good $50,000 a year in benefits.
Save for your future
While $50,000 from Social Security every year might help you enjoy a comfortable retirement if you're an average wage earner, if you're a higher earner, you'll probably need more income than that to maintain the lifestyle you're used to. And that's where your personal savings come in.
If you're a higher earner, it may be feasible to sock away $1,000 a month in your 401(k) plan over a 35-year period. Invest that money at an average annual 8% return, which is a few percentage points below the stock market's average, and you'll be looking at an ending 401(k) balance of roughly $2 million.
Then, if you withdraw from your savings at an annual rate of 3%, which is actually somewhat conservative, you'll get $60,000 of yearly income. Combine that with your $50,000 a year from Social Security, and you should be in a pretty solid spot to enjoy retirement to the fullest.
While it certainly doesn't hurt to try to squeeze as much money out of Social Security as possible, even the most generous benefit the program will pay may not be enough to get you through your senior years. Instead of relying solely on Social Security to fund your retirement, save for it independently to help ensure that you don't encounter financial worries later in life.
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