Maximizing your Social Security benefits is an important part of any good retirement plan. About half of households with someone age 65 or older receive 50% or more of their total income from Social Security, according to data analyzed by the Social Security Administration. It is essential for millions of people to get every cent out of the program.
There are only a few factors you have control over when it comes to maximizing your Social Security benefits in retirement: how much you earn during your career and when you file for benefits. But even if your career earnings are very high, there is still a big difference between what you receive from Social Security depending on whether you file a claim at age 62, 66, or 70. Looking at the differences between the maximum possible benefit at each of these ages makes this very clear.
Here you can see exactly how much you need to earn to maximize social security
To qualify for the maximum Social Security benefit, you must earn a high salary for decades.
When it’s time to calculate your monthly benefits, the Social Security Administration will look at your earnings throughout your career. It adjusts recent years’ earnings based on historical wage growth so that what you earned 20 or 30 years ago is comparable to what you earned this year. It then selects your highest earnings over the past 35 years and uses them to calculate your average monthly income.
That number is the key to determining your primary insurance amount. This is the amount you will receive if you apply for benefits at full retirement age. If you file before you reach full retirement age, you will receive less than the amount of your primary insurance. Claim later and you’ll get more.
But not every dollar you earn always counts toward your average income calculation. That’s because the Social Security Administration sets a limit each year on the amount of taxable income, called the “contribution and benefit base.” That amount is adjusted annually to rising average wages. For 2024, the premium and benefit base is $168,600.
It is necessary to earn more than the premium and benefit basis for 35 years to qualify for the maximum possible benefit from social security. While only about 6% of workers will exceed that rate in any given year, a much smaller percentage will consistently earn more than that amount for at least 35 years.
For reference: here you can see how the premium and benefit basis has changed over the past 50 years.
Annual income annual income1975 $ 14,1002000 $ 76,2001976 $ 15,3002001 $ 80,4001977 $ 84,500222 $ 84,9001978 $ 17,7002003 $ 87,0001979 $ 22,9002004 $ 22,9002004 $ 29,7002006 $ 94,2001982 $ 32,4002007 $ 97,5001983 $ 35, 7002008 $ 102,0001984 $ 37,8002009 $ 106,8001985 $ 39,8001986 2012 $ 110,1001988 $ 45,00020 13 $ 113,7001989 $ 48,0002014 $ 117,0001990 $ 51,3002015 $ 118,5001991 $ 53,4002016 $ 118,5001992 $ 55.5.17.47.47.47.47.47.47.47.47.47.47.47.47.47.25.5.5.5.5.5.5.5.5.5.5.5.5.5EVENGE PENO. 6002019 $ 132,9001995 $ 61,2002020 $ 137,7001996 $ 62,7002021 $ 142, 80 01997$65,4002022$147,0001998$68,4002023$160,2001999$72,6002024$168,600
Data source: Social Security Administration.
Here is the maximum possible social security benefit at ages 62, 66 and 70
Even if you earn above the maximum taxable income for 35 years during your career, you will still see a significant difference in your monthly benefit depending on when you file for benefits.
You can apply for a social security pension benefit from the age of 62. As mentioned, filing a claim before your full retirement age will result in a payout that is less than the amount of your primary insurance. Depending on your date of birth, your full retirement age is between 66 and 67. In 2024, retirees born in 1957 and 1958 will reach their full retirement age at 66 and 6 months (if they have not already done so) and 66 and 8 months, respectively.
You maximize your monthly benefit by deferring until age 70. There is rarely any benefit to waiting past age 70 because the Social Security Administration will not increase your monthly benefit further.
So most retirees are trying to decide between filing as soon as possible, waiting until their full retirement age around 66 years old, or maximizing their monthly benefit at age 70. Here’s what the maximum monthly benefit will look like at each of those ages in 2024.
Retirement age626670Maximum monthly benefit$2,710$3,652$4,873
Data source: Social Security Administration.
As you can see, the 70-year-old who claims the maximum benefit in 2024 will receive $58,476 in annual income from Social Security alone. The 62-year-old only fetched $32,520. One could completely replace the average individual income, while the other will likely require other retirement savings to cover necessary expenses in retirement.
Is it worth waiting?
If you’ve earned enough during your career to qualify for the maximum possible Social Security benefit, you’ve probably managed to save a large portion of your earnings in various retirement accounts.
You may be tempted to claim Social Security early so you don’t have to withdraw so much of your own savings. You probably know that the longer you keep your money invested, the more wealth you can accumulate. Plus, it can be nice to have a larger egg of savings to pass on as an inheritance.
But claiming early comes at the expense of a guaranteed return. Each month that you delay receiving Social Security benefits, your benefit check will increase slightly. If you wait until age 70, your check will be about 77% larger than if you file a claim at age 62. Plus, that’s an inflation-adjusted return, since Social Security receives a cost-of-living adjustment every year. In other words: it is a guaranteed annual real return of 7.4%.
For comparison: the S&P500 historically an average real total return of 6.5%. These returns are far from guaranteed and come with a lot of volatility. Additionally, during your retirement you will likely hold a large number of bonds in your portfolio, which have lower expected returns. All of this is to say that delaying Social Security is often a better “investment” for your retirement account than stocks or bonds.
There are some disadvantages to delaying benefits. You won’t be able to pass your benefits on to your heirs, and you may not live long enough to make deferral worthwhile in the long run. But those drawbacks are usually outweighed by the positives, especially if you’re well into your golden years.
Numerous data sources suggest that waiting until 70 is the optimal decision if you can afford it. A 2019 United Income survey found that 57% of retirees would maximize their wealth in retirement by waiting until age 70. An article published by the National Bureau of Economic Research suggests that 90% of retirees would be better off delaying their benefits until age 70. And the CDC’s Life expectancy data shows that the majority of retirees would receive more Social Security income during their lifetimes by delaying it until age 70.
So whether you’re lining up to get the maximum possible benefit or not, it’s worth delaying.
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Here’s the maximum possible Social Security benefit at ages 62, 66 and 70 originally published by The Motley Fool
