If you have to participate in the program, you may as well make the most of it.
Everyone should be looking beyond Social Security to fund their retirement. Consistently contributing even just a modest amount of money to an IRA, for instance, can result in a surprisingly big nest egg later in life. Even the Social Security Administration says its program was never intended to be anyone’s sole source of retirement income.
However, a handful of people are collecting surprisingly big Social Security checks of $4,873 every month. Not too shabby.
How’d they do it? And can you do it too? Maybe you can. Here’s what it takes to take home the maximum monthly Social Security retirement benefit, once that time comes for you.
Earn at least $168,600 this year
Everyone’s eventual Social Security benefits are based on the amount of taxable income they earn during their working years — the more you make now, the more you get back later.
There are limits, though. Unlike income tax, for 2024 the Social Security Administration stops taking out additional Social Security taxes once your earned income exceeds $168,600. Why? Because taxing any degree of your income beyond that amount wouldn’t make your monthly payments any bigger once you claim retirement benefits. The program isn’t going to take something from you now that it doesn’t — or can’t — offer in return to you later.
That’s just this year’s cap, to be clear. Last year’s taxable earned income ceiling was $160,200. The year before that, the Social Security Administration stopped collecting additional taxes once your annual wages reached $147,000. Back in 2004, the cap stood at $87,900. All the way back in 1984, you owed Social Security taxes on your first then-relatively-high $37,800 worth of income.
| YEAR | SOCIAL SECURITY’S TAXABLE EARNED INCOME CEILING | YEAR | SOCIAL SECURITY’S TAXABLE EARNED INCOME CEILING |
|---|---|---|---|
| 1983 | $35,700 | 2004 | $87,900 |
| 1984 | $37,800 | 2005 | $90,000 |
| 1985 | $39,600 | 2006 | $94,200 |
| 1986 | $42,000 | 2007 | $97,500 |
| 1987 | $43,800 | 2008 | $102,000 |
| 1988 | $45,000 | 2009 | $106,800 |
| 1989 | $48,000 | 2010 | $106,800 |
| 1990 | $51,300 | 2011 | $106,800 |
| 1991 | $53,400 | 2012 | $110,100 |
| 1992 | $55,500 | 2013 | $113,700 |
| 1993 | $57,600 | 2014 | $117,000 |
| 1994 | $60,600 | 2015 | $118,500 |
| 1995 | $61,200 | 2016 | $118,500 |
| 1996 | $62,700 | 2017 | $127,200 |
| 1997 | $65,400 | 2018 | $128,400 |
| 1998 | $68,400 | 2019 | $132,900 |
| 1999 | $72,600 | 2020 | $137,700 |
| 2000 | $76,200 | 2021 | $142,800 |
| 2001 | $80,400 | 2022 | $147,000 |
| 2002 | $84,900 | 2023 | $160,200 |
| 2003 | $87,000 | 2024 | $168,600 |
DATA SOURCE: U.S. SOCIAL SECURITY ADMINISTRATION.
The point is, you need to be a relatively high earner the whole time you’re working if you want the biggest possible monthly payments when you finally retire.
Earn at least Social Security’s annual maximum wage base for at least 35 years
You must also be a high earner for many, many years if you’re hoping to cash the maximum monthly Social Security checks of $4,873 once you claim retirement benefits. You have to reach or exceed Social Security’s aforementioned inflation-adjusted taxable income ceilings for at least 35 years, in fact, to qualify for the program’s biggest payouts. Why? Again, it’s a matter of input and output — the more you put in during your lifetime, the more you get back out.
That said, there’s some additional strategic-minded discussion merited here.
When determining your eventual Social Security retirement benefit, the Social Security Administration only considers your 35 highest-earning years. Earning more than the taxable income cap for 40 years doesn’t add five years’ worth of benefit to your eventual payment. And, even if you earn a very good income for 35 years, you’ll still not qualify for the maximum $4,873 monthly benefit if you don’t reach the maximum earnings thresholds discussed above in at least 35 of them.
Therefore, if you have the option of deferring some income to a different year or working for just a little bit longer to get a full 35 years in, it could be to your advantage to do so.
Delay claiming retirement benefits until you’re 70
Last but not least, holding off on the initiation of your Social Security retirement benefits can boost your eventual payments.
Assuming you’ve earned enough money in enough years, you must still wait until you’re 70 years old to claim benefits if you’re hoping to collect the maximum-sized monthly check of $4,873. The most anyone can earn this year if they’re claiming at 67 years of age is $3,822. Anyone claiming at the age of 62 this year won’t be able to collect more than $2,710 per month, and that’s still assuming they’ve earned very good money for at least 35 years of their life.
What gives? It’s just a matter of the lifetime value of your benefits.
See, given the average lifespan of about 84 years for anyone reaching the age of 65, anyone claiming at 62 will obviously be collecting Social Security checks a lot longer than people claiming benefits at 70. To make the program fair for all its participants, therefore, anyone collecting for a longer period of time will see smaller monthly checks, while people apt to collect for a shorter period of time will see bigger monthly payments. Most people end up collecting about the same total amount as others with comparable work-based earnings. The timing of their total collected amount is just different.
You should be looking beyond Social Security anyway
But you already know there’s just no way you’ll even be getting close to the maximum Social Security retirement benefit? That’s OK. Most people don’t. Less than 2% of participants are even seeing monthly checks of over $4,000, in fact. This year’s average monthly Social Security payment is much more modest at around $1,900.
The thing is, it doesn’t really matter. Social Security was never meant to be a retirement plan in and of itself anyway. It was only intended to be a supplement to income generated by someone’s own retirement savings, where opportunities for a better return on your money abound. Investing $300 per month in a simple S&P 500 index fund, for example, could be worth more than $1 million after 35 years.
The tough part is often just getting started. Even if you’ve already started saving for retirement, though, now’s the time to take it to the next proverbial level by saving a little more and improving your overall returns. Your ultimate goal should be getting to a point where you’re not worried about whether you’re claiming the biggest possible Social Security retirement benefit.