Here are some key things to know about Social Security. For starters, it's not likely to come anywhere near replacing your pre-retirement income. Indeed, the average annual retirement benefit totals only about $22,000 as of June 2023. But the maximum Social Security benefit is far greater: $4,555 per month, or close to $55,000 annually.
Unfortunately, it's difficult to qualify for that maximum payout. For most of us, it's impossible. Read on to see why so few will ever collect that $4,555 per month and to see whether you might be among the fortunate few. See how you can increase your benefits, too, even if you don't come close to that maximum.
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1. You need to work for a long time -- at least 35 years
First off, know that the formula used by the Social Security Administration (SSA) to determine your benefits considers your earnings in the 35 years in which you earned the most -- adjusting them for inflation, of course. So if you worked for only, say, 32 years, it will insert three zeroes into the calculation. That right there is enough to torpedo any hope of achieving that maximum $4,555 monthly benefit.
2. You need to max out your earnings -- for 35 years
Next, you need to earn a certain maximum sum in each of the 35 years that count toward your benefit.
Every year, the SSA updates a number often referred to as the maximum taxable earnings -- for 2023, it's $160,200 (and it was $147,000 in 2022 and $142,800 in 2021). This is the sum beyond which you're not taxed for Social Security. So if there are two people who respectively earn $160,200 and $5,160,200 in 2023, they will pay the same tax to support Social Security.
That $160,200 cap is also the maximum in earnings that count toward your Social Security benefits. So earning more than $160,200 in 2023 or more than $147,000 in 2022 will not beef up your benefits further. Still, if you want to collect that maximum monthly Social Security benefit of $4,555, you'll need to earn at least this maximum sum in each of the 35 years that figure into your benefit calculation.
For most of us, it's going to be difficult or impossible to achieve this.
3. You need to wait until age 70 to start receiving benefits
Finally, you'll need to delay starting to collect your benefits until age 70. You can start collecting them as early as age 62, but benefit checks are smaller if you do so. You can collect your full benefits starting at your "full retirement age," which is 67 for most of us workers. Or you can delay beyond your full retirement age up to age 70, making your benefits about 8% bigger for each year you delay. (Beyond age 70, there's no further benefit increase.)
Again, this is something that not everyone can do. Many people simply need to start collecting their benefits as soon as possible. Millions find themselves retiring earlier than planned, due to health setbacks, job losses, or other factors. If they can't fully support themselves with their savings or other resources, they'll need to tap Social Security early.
You can still increase your benefits even if you can't max out
So you probably are not going to be collecting that maximum benefit. Most people won't be able to do so. Still, there are ways to increase your benefits to make them as hefty as possible. For one thing, aim to have at least 35 years of earnings, and aim to earn as much as possible, too. That might involve having a side gig for a while, or asking for raises more often.
Think hard about when to start those Social Security benefit checks rolling, too, because if you're able to delay turning on the spigot, you can make them much bigger -- though for some people, starting early is actually a smart move.
