Social Security: Here’s the Income You Need to Earn the Max Benefit | Smart Change: Personal Finance

(Katie Brockman)

There are many factors that go into calculating your Social Security benefit amount, but your income throughout your career is perhaps the most important.

Your earnings will determine your basic benefit amount, or the amount you’ll receive if you file for Social Security at your full retirement age (FRA). The more you earn, the higher your monthly payments will be.

In 2022, the maximum you can collect in benefits is $4,194 per month — far higher than the average retiree’s benefit amount of around $1,657 per month. Here’s the income you’ll need to earn as much as possible from Social Security.

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How to max out your benefits

To earn the largest possible payments, you’ll need to consistently reach the maximum taxable earnings limit — which is the highest income subject to Social Security taxes.

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The Social Security Administration calculates your benefits by taking an average of your wages over the 35 highest-earnings years of your career, then adjusting that number for inflation. To earn the maximum benefit amount, then, you’ll have to reach the max earnings limit consistently over 35 years.

This limit will change each year to account for cost-of-living changes. As of 2022, however, it’s $147,000 a year. For context, 35 years ago in 1987, the limit was $43,800 per year.

If you’re not earning that much, that’s OK. Even if your income falls significantly below the maximum taxable earnings limit, there are more manageable ways to increase your benefits.

Collect more from Social Security

One of the most effective ways to boost the size of your monthly checks is to delay claiming benefits.

The earliest you can file for Social Security is age 62, but for every month you wait beyond that age (up to age 70), you’ll receive a higher payment. Delaying benefits by even a year or two can potentially add up to hundreds of dollars more per month, which can go a long way in retirement.

For example, say you have an FRA of 67 years old, and by filing at that age, you’d receive $1,500 per month. If you were to wait until age 70 to begin claiming, you’d receive a 24% bonus, resulting in a payment of $1,860 per month.

Other ways to increase your benefits

If you’d prefer not to delay benefits, there are other options that can boost your Social Security† For example, you can ensure you’ve worked a full 35 years before you file.

Because the Social Security Administration calculates your benefits based on your 35 highest-earning years, working a full 35 years will result in the highest payments. If you work less than that, you’ll have zeros added to your earnings average, bringing down your benefit amount.

In addition, you may see if it’s possible to increase your income. Even if you’re well below the maximum taxable earnings limit of $147,000 per year, higher earnings mean a larger monthly payment. Increasing your income even slightly, then, can help you get closer to the maximum benefit.

Few people will be able to reach the maximum Social Security benefit, and that’s OK. The good news is that there are plenty of ways to earn higher payments. By taking small steps and heading into retirement with a strategy, you can ensure you’re collecting as much as possible.

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