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There are different factors that come together to determine how much money Social Security pays you on a monthly basis. Those include the number of years you work, the amount you earn each year, and the age at which you decide to sign up for Social Security.
This year, the maximum Social Security benefit amounts to $4,194 per month. On a yearly basis, that’s an income of $50,328, which is actually pretty generous.
But most seniors end up collecting a lot less from Social Security. And here’s why that will likely be the case for you.
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The maximum monthly benefit is really hard to snag
To claim the maximum monthly Social Security benefit, you have to do the following things:
Work at least 35 years.
Earn enough for 35 years so that your salary matches or exceeds the annual wage cap.
Delay your Social Security claim until the age of 70.
Now the first and last points may not be so difficult to achieve. A lot of people manage to put in more than 35 years in the labor force, and many intentionally delay retirement in order to be able to hold off on claiming Social Security until age 70.
It’s the middle point that’s a bit harder, since it hinges on being a high earner. Each year, there’s a wage cap put in place that determines how much earnings are subject to Social Security taxes. This year, that cap is $147,000, and it will likely increase in 2023.
Snagging the maximum Social Security benefit requires you to earn the equivalent of the wage cap or more for a 35-year period. And that’s not necessarily something you can control. If you’re a teacher, for example, you’re probably not able to earn a $147,000 salary (at least not in many school districts) no matter hard how you’re willing to work.
Furthermore, while some people have a pretty easy time working for 35 years or delaying Social Security until age 70, that’s not possible for everyone. And so that’s why the average monthly Social Security benefit is a lot lower than the maximum $4,194 a month seniors can collect.
Lower benefits don’t have to be a problem
While some seniors may be in line for an annual income of over $50,000 from Social Security, you don’t have to sweat it if that’s not what you’re looking at. That’s because there are steps you can take to compensate for lower benefits.
For one thing, you can build up a decent-sized nest egg. If you manage to amass $1 million in savings and you decide to withdraw from your balance at a rate of 4% a year, which experts have long recommended, you’ll have an extra $40,000 at your disposal annually. Even if Social Security only pays you $20,000 a year in benefits, that’s still an annual income of $60,000.
You can also work part-time in retirement if your health allows for that. Jobs have gotten increasingly flexible in recent years, so you may find that holding down a part-time gig isn’t such a strain and that it allows you to supplement your benefits nicely.
All told, most seniors aren’t collecting upward of $50,000 from Social Security in a year. So if you don’t wind up falling into that category, rest assured that you’re in good company — and that your retirement is by no means doomed.
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