Statistically speaking, very few retired workers will qualify for the maximum Social Security benefit. But those who understand how to maximize benefits -- and how Social Security payouts vary across age groups -- can still use that information to increase their retirement income.
That sounds simple, but many Americans are somewhat uninformed where Social Security is concerned. Indeed, just 14% of adults surveyed by Nationwide Retirement Institute strongly agreed with the following statement: "I know exactly how to maximize my Social Security benefits."
Here are the details future beneficiaries need.
Image source: Getty Images.
The nuts and bolts of the maximum Social Security benefit
The Social Security benefits formula is realigned annually with the national average wage index. As a result, the maximum retired-worker benefit generally increases from one year to the next. For instance, the biggest possible payout is currently $4,555 per month, up from $4,194 per month in 2022.
Three factors play a role in determining who qualifies for the maximum Social Security benefit: Work history, lifetime earnings, and claiming age.
Work history: The benefits formula uses inflation-adjusted income from a person's 35 highest-paid years of work to determine the primary insurance amount (PIA) for each worker. The PIA is the payout a worker would receive if they started Social Security at full retirement age (FRA), which is 67 for anyone born in 1960 or later.
That means workers must have a 35-year work history (at a minimum) to qualify for the maximum Social Security benefit.
Lifetime earnings: Current law limits the income subject to Social Security payroll tax. That limit, known as the taxable maximum, is adjusted each year to account for changes in general wage levels. Only income below the taxable maximum is relevant to the benefits formula. Any excess is excluded from the calculation.
That means workers must have income that equals or exceeds the taxable maximum (for 35 years) in order to qualify for the biggest Social Security benefit. For reference, the chart below lists the taxable maximum over the last decade.
|
Year |
Social Security's Taxable Maximum |
|---|---|
|
2014 |
$117,000 |
|
2015 |
$118,500 |
|
2016 |
$118,500 |
|
2017 |
$127,000 |
|
2018 |
$128,400 |
|
2019 |
$132,900 |
|
2020 |
$137,700 |
|
2021 |
$142,800 |
|
2022 |
$147,000 |
|
2023 |
$160,200 |
Data source: Social Security Administration.
Claiming age: Workers can collect Social Security at age 62, but they are not entitled to their full retirement benefit (or PIA) until they reach FRA. Starting Social Security before FRA leads to a permanent benefit reduction, and starting Social Security after FRA leads to a permanent benefit increase, but there is no advantage to claiming any later than age 70.
That means workers must delay Social Security until age 70 in order to qualify for the maximum benefit.
The biggest Social Security retirement benefit by age
Workers who want the maximum Social Security retirement benefit must meet these three criteria:
- Work for at least 35 years
- Meet or exceed the taxable maximum each year
- Start Social Security benefits at age 70
Workers who can check all three boxes will get the biggest Social Security benefit possible. But workers who only meet the first two criteria will still get a substantial payout. Indeed, they would receive the largest payout possible at whatever age they decide to claim benefits.
The chart below details the maximum Social Security benefits at different claiming ages.
Chart by author. Note: Workers born in 1957 attained full retirement age (FRA) in 2023 at 66 and 6 months. It is also possible that workers born in 1956 attained FRA in 2023 at 66 and 4 months, if they were born in the last three months of 1956.
The chart above sends a very clear message: It pays to delay Social Security. All else being equal, the benefit paid to a retired worker born in 1960 or later would be 77% higher at age 70, as compared to age 62. The increase in nominal dollars will fluctuate based on work history and lifetime earnings, but the 77% increase remains constant regardless of changes in the other two variables.
Of course, there are pros and cons to claiming Social Security at age 70. One downside is that delaying benefits often necessitates a temporary lower living standard. Another downside is that spousal benefits must also be delayed while retired-worker benefits are delayed. Even so, the statistics are clear: Most retirees can maximize their lifetime Social Security income by delaying retirement benefits until age 70.
