by If you have to participate in the program, you might as well make the most of it.
Everyone should look beyond Social Security to fund their retirement. Continually contributing even a modest amount of money to an IRA, for example, can result in a surprisingly large nest egg later in life. Even the Social Security Administration says its program was not intended to be anyone’s sole source of retirement income.
However, a handful of people are collecting surprisingly large Social Security checks of $4,873 each month. Not too weak.
How did 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 when it’s time 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 earn now, the more you get back later.
However, there are limits. Unlike the income tax, for 2024 the Social Security Administration stops taking additional Social Security taxes after your earned income exceeds $168,600. Why? Because taxing any amount of your income beyond that amount wouldn’t make your monthly payments bigger after you claim retirement benefits. The program won’t take something from you now that it doesn’t — or can’t — offer you in return later.
This is just this year’s cap, to be clear. The previous year’s taxable earned income ceiling was $160,200. A year ago, the Social Security Administration stopped collecting additional taxes after your annual salary reached $147,000. In 2004, the cap was $87,900. As of 1984, you owed Social Security taxes on your then-relatively high first income of $37,800.
| YEAR | Social security taxable income ceiling | YEAR | Social security taxable income ceiling |
|---|---|---|---|
| 1983 | 35700 dollars | 2004 | $87,900 |
| 1984 | 37800 dollars | 2005 | 90,000 dollars |
| 1985 | 39600 dollars | 2006 | $94,200 |
| 1986 | 42,000 dollars | 2007 | $97,500 |
| 1987 | 43800 dollars | 2008 | $102,000 |
| 1988 | $45,000 | 2009 | 106 800 dollars |
| 1989 | 48,000 dollars | 2010 | 106 800 dollars |
| 1990 | $51,300 | 2011 | 106 800 dollars |
| 1991 | $53,400 | 2012 | $110,100 |
| 1992 | 55500 dollars | 2013 | $113,700 |
| 1993 | 57600 dollars | 2014 | $117,000 |
| 1994 | 60600 dollars | 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 | 72600 dollars | 2020 | $137,700 |
| 2000 | 76200 dollars | 2021 | $142,800 |
| 2001 | 80 400 dollars | 2022 | $147,000 |
| 2002 | $84,900 | 2023 | $160,200 |
| 2003 | $87,000 | 2024 | 168600 dollars |
Data source: US Social Security Administration.
The point is, you need to be a relatively high earner the entire time you’re working if you want the biggest monthly payments possible when you eventually retire.
Earn at least the maximum annual Social Security wage base for at least 35 years
You also have to be a high earner for many, many years if you hope to collect the maximum monthly Social Security checks of $4,873 after you claim retirement benefits. You must meet or exceed the aforementioned Social Security inflation-adjusted taxable income limits for at least 35 years, in fact, to qualify for the program’s larger payments. Why? Again, it’s a matter of input and output — the more you put in during your lifetime, the more you’ll get out.
That said, additional strategically minded discussion is warranted here.
When determining your Social Security retirement benefit, the Social Security Administration only considers your 35 highest earning years. Earning more than the taxable income limit for 40 years does not add five years of benefit to your eventual payment. And, even if you earn very good income for 35 years, you won’t qualify for the maximum monthly benefit of $4,873 unless you reach the maximum earnings thresholds discussed above for at least 35 of them.
Therefore, if you have the option of deferring some income for another year or working a little longer to get the full 35 years, it may be to your advantage to do so.
Delay receiving retirement benefits until age 70
Last but not least, delaying the start of Social Security retirement benefits can increase your eventual payments.
Assuming you’ve earned enough money over enough years, you still have to wait until you’re 70 to claim benefits if you hope to collect the maximum size monthly check of $4,873. The most anyone can earn this year if they claim at age 67 is $3,822. Anyone claiming at age 62 this year won’t be able to collect more than $2,710 a month, and that’s still assuming they’ve been making very good money for at least 35 years of their lives.
What gives? It’s just a matter of the lifetime value of your benefits.
Image source: Getty Images.
See, given the average life expectancy of about 84 years for anyone who reaches age 65, anyone claiming to be 62 will obviously be collecting Social Security checks much longer than people claiming benefits at age 70. To make the program fair to all its participants, therefore, anyone who collects over a longer period of time will see smaller monthly checks, while people inclined to collect over a shorter period of time will see see larger monthly payments. Most people end up collecting about the same total amount as others with comparable job-based earnings. The timing of the total amount collected is simply different.
You have to look beyond Social Security, though
But you already know there’s no way you’re going to get close to the maximum Social Security retirement benefit? It’s okay. Most people don’t. Less than 2% of participants are even seeing monthly checks over $4,000, in fact. This year’s average monthly Social Security payment is much more modest at about $1,900.
The thing is, it doesn’t really matter. Social Security was never intended to be a retirement plan per se, however. It was only intended to be a supplement to the income generated by one’s retirement savings, where the opportunities for a better return on your money are many. Invest $300 a month in a simple S&P 500 an index fund, for example, could be worth more than $1 million after 35 years.
The hard part is often just getting started. Even if you’ve already started saving for retirement, however, now’s the time to take it to the proverbial next level by saving a little more and improving your overall income. Your ultimate goal should be to get to a point where you’re not worried about whether you’re getting the largest possible Social Security retirement benefit.
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