Warren Buffett will turn 94 on August 30, 2024 and has still not retired. Buffett remains chairman and CEO of Berkshire Hathawayjust as he has done for more than five decades.
The legendary investor has been eligible for full retirement benefits since 1995. With his net worth of almost $138 billion, you would think that Buffett would automatically receive the maximum possible monthly payout. But that is not the case.
Why Buffett’s billions don’t count
Buffett’s billions don’t count when the Social Security Administration (SSA) calculates his retirement benefits. It could be worth $138 trillion, and it wouldn’t matter. The SSA does not use the assets, but the income. To be specific, the agency uses earnings from a person’s 35 highest-paid years during their career.
Determining the 35 highest-paid years in a person’s earnings history is just the first step in calculating Social Security retirement benefits. The SSA then adjusts these earnings to reflect changes in overall wage levels over the period to calculate an average indexed monthly income (AIME).
The agency then uses this AIME in a formula to calculate the Primary Insurance Amount (PIA). Is this PIA the amount you receive in your monthly Social Security check? Sometimes.
If someone applies for retirement benefits before full retirement age (FRA), the PIA is reduced by up to 30%. On the other hand, if someone waits to claim benefits past the FRA (until age 70), benefits will increase.
Estimating Buffett’s Social Security Benefit
So how big is Buffett’s Social Security check? The billionaire may not receive one. Individuals can choose to forgo their Social Security benefits. However, assuming Buffett didn’t choose this option, we can estimate how much his monthly Social Security check will be.
Berkshire Hathaway’s proxy statements filed with the U.S. Securities and Exchange Commission (SEC) show that his salary since 1980 has been $100,000. He has also received additional income from serving on the board of directors of Berkshire and other companies in the past.
When Buffett reached full retirement age in 1995, the maximum taxable income for Social Security was $61,200. If we go back 35 years before that, the maximum was only $4,800.
It seems reasonable to conclude that Buffett has earned at least the annual maximum amount over the years. If this assumption is correct, he would receive the maximum possible Social Security retirement benefit of $3,822 today if he were to claim benefits at full retirement age. If he waited to claim benefits, his monthly benefit could be as much as $4,873. Buffett’s net worth would not allow him to achieve this maximum benefit, but his earnings would.
How your Social Security check could be as big as Buffett’s
Most people will never be worth billions of dollars like Buffett. However, it’s possible that your Social Security check is as big as his, or close to it. The SSA calculates your retirement benefits the same way it calculates Buffett’s.
To maximize your Social Security retirement benefits, you must first work for 35 years in a job that qualifies for Social Security benefits. You must also reach the maximum taxable amount in each of those years. Even if you don’t reach this maximum, the higher your income, the higher your Social Security retirement benefit will be.
You also want to wait to apply for retirement benefits until you reach your full retirement age. To increase your benefits even more, you can wait until you are 70 years old.
You may never become a billionaire like Warren Buffett. But you could potentially receive similar Social Security benefits.
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Keith Speights holds positions at Berkshire Hathaway. The Motley Fool holds positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
Warren Buffett is worth $138 billion. Here’s how big his Social Security check likely is. was originally published by The Motley Fool
