Social Security is one of the most important social programs for retirees. For decades, it has provided a safety net for millions of Americans navigating the world of retirement finances. Regardless of what role Social Security will play in your retirement, having an informed, strategic approach is key to maximizing your benefits.
There's good and could-be-better news for people anticipating the maximum Social Security benefit. The could-be-better news is that most people won't qualify for the maximum benefit. The good news is that, despite this, it's possible to achieve. Here are the two steps needed to make it happen.
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1. Earn over the wage base limit for 35 years
Social Security determines your monthly benefits based on the 35 years when your earnings were the highest. However, they only consider income up to a certain threshold, called the wage base limit. The wage base limit is the maximum amount of income subject to Social Security taxes each year, and it's adjusted annually for inflation.
In 2024, the wage base limit is set at $168,600, an increase from the $160,200 limit in 2023. This means any earnings above $168,600 won't be subjected to the 12.4% tax rate (split equally between the employee and employer or paid solely by the individual if self-employed).
To qualify for the maximum possible Social Security benefit of $4,873 per month, your earnings during the 35 years considered in the calculation must be at least equal to the wage base limit for each of those years. For example, if 2020 through 2024 will be used in your calculations, here's how much you would've needed to earn:
| Year | Wage Base Limit |
|---|---|
| 2024 | $168,600 |
| 2023 | $160,200 |
| 2022 | $147,000 |
| 2021 | $142,800 |
| 2020 | $137,700 |
Data source: Social Security Administration.
Earning anything below the wage base limit in the 35 years used in your calculation would disqualify you from receiving the maximum $4,873 benefit.
2. Delay claiming benefits until you reach age 70
Your full retirement age is one of the most important numbers in Social Security. It's the age at which you're eligible for your full Social Security benefit, and it's based on your birth year as follows:
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You don't have to claim benefits at your full retirement age; you can claim them before or after. Claiming benefits before your full retirement age decreases your monthly payout based on how far out you are from your full retirement age. Delaying your benefits past your full retirement age increases them by two-thirds of 1% for each delayed month up until age 70. That works out to 8% annually.
To receive the maximum monthly Social Security benefit, you must earn at least the wage base limit for 35 years and delay benefits until age 70. Even if you meet the income requirement, claiming anytime before 70 would disqualify you from receiving the full $4,873.
Work to make Social Security one piece of the retirement puzzle
Social Security makes up a good portion of many people's retirement finances, but it can often come up short of covering all their expenses. Even if you qualify for the maximum benefit, the plan should be to have Social Security as supplemental retirement income, if possible.
It's best to take a diversified approach and have multiple sources of retirement income. Retirement accounts like 401(k)s and individual retirement accounts (IRAs) are great options for saving and investing for retirement. A 401(k) is the most common retirement account because it's tied to employers, but IRAs can be underrated for their flexibility and tax advantages.
Retirement is meant to be your golden years. To enjoy it to the fullest, being financially prepared is typically a must. Knowing the role Social Security will play in your retirement finances can help you plan more effectively and ensure you're as prepared for retirement as possible.
