Your Social Security benefits are based on your average salary, but there is a maximum amount of money each year that counts in this calculation. That means a maximum monthly Social Security benefit is paid. In 2022, that maximum is $4,194 per month.
This is a great benefit, especially considering that the average retiree receives only $1,661 per month. If you want to try optimizing for it, there are a few steps you’ll need to take, and all of them will be challenging. This is what they are.
1. Earn a substantial amount of money
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If you want a shot at the monthly maximum of $4,194 Social Security profit, earning a lot of money is the most important thing to do. Specifically, you must earn at least the maximum income that counts in the Social Security benefit formula.
Remember, as mentioned above, benefits are based on average wages up to a certain earnings level. That maximum income level is why there is a cap on the total benefits paid each month. In 2022, income subject to Social Security tax is capped at $147,000. no matter how plus you earn that amount. You only pay Social Security taxes on wages up to that level. And anything you earn above that won’t count when calculating the average salary on which your benefits are based.
The amount of earnings counted in the benefit formula changes over time. But it will always be the equivalent of that amount after adjusting for wage growth. So if you want to optimize for the $4,194 monthly profit, that’s the minimum you’d need to earn each year.
2. Continue working for no less than 35 years
When the Social Security Administration determines your average salary, it does so by considering the 35 years in which your earnings were the highest.
That means you need at least a 35-year history of earning the maximum taxable income. If you are only 34 years old when you earned the inflation-adjusted equivalent of $147,000, you will not reach the maximum benefit.
If you manage to earn the required amount each year you work, you can stop at age 35 and be on your way to getting the maximum benefit. But if you have a few years of lower income, you will have to stay on the job longer to Get the maximum monthly Social Security check of $4,194. Working that extra time can lengthen years in which you fell short.
3. Plan for a delayed Social Security claim
Finally, the last step is to make sure you can claim Social Security at age 70 for the first time, rather than at a younger age, even though benefits are first available at age 62. It is necessary to wait because if you claim at any time prior to 70, your benefit will be less than it could be.
The reason your benefit maxes out at 70 is because Social Security has a system of early filing penalties and late retirement credits. These are applied to try to equalize the lifetime income received by the first and last. Your benefit grows each year until age 70, so the maximum benefit is available only to those who wait until they can’t increase it any further.
Ultimately earning the inflation-adjusted equivalent of $147,000 over 35 years Y waiting to receive Social Security until age 70 is going to be difficult. It’s doable, but you’ll have to work to increase your income early on and save a lot of money to support yourself if you can’t work until you’re 70.
While you can set this goal, you should also save enough to make sure you’re comfortable even if your Social Security benefit ends up being much less than $4,194 per month.
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