How Much You Earn
This last requirement is the kicker: You must have paid maximum Social Security taxes for 35 years or more. To do that, you would have had to earn income equal to or higher than Social Security’s taxable maximum.
The taxable maximum is always a big number. In 2022, it’s $147,000. Next year, it’ll be $160,200.
The 2022 threshold of $147,000 is more than two and a half times the median annual salary for U.S. workers, which is $55,640. It’s an incredible accomplishment to earn that six-figure max in one year. In 2020, only 6% of the working population hit that mark.
Sadly, a much smaller slice of the population will reach that threshold 35 times or more.
Why The $4194 Max Social Security Benefit Is A Fantasy
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You can earn up to $4,194 monthly from Social Security. But will you? Sadly, the answer’s probably no.
There are three main requirements to qualify for the maximum Social Security benefit. They involve when you claim Social Security relative to your FRA, how long you work, and how much you’ve earned. And it’s not easy to tick all three boxes.
Want To Max Out The Size Of Your Social Security Checks You’re Going To Have To Earn A Lot Of Money
The maximum Social Security benefit a retiree can receive in 2021 is $3,895. That’s well above the average benefit of $1,553. Both the maximum and average benefits go up most years.
Sadly, most people don’t have a chance at the largest benefit check. To get it, your earnings need to meet or exceed a certain income amount — and not just for one year but for 35 years.
So how much do you need to earn to score the maximum benefit when you retire?
Image source: Getty Images.
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Understanding The Social Security Family Maximum
Related Content
FAQ: Is there a limit to the amount of monthly benefits my family can get on my record?
Social Security’s family maximum rules limit the total benefits payable to a beneficiary’s family. Different family maximum rules apply to retirement and survivor benefits than to disability benefits. The rules for calculating family maximum benefits are complicated. In some particularly complex cases, it is difficult to properly implement the family maximum, which can result in over- or underpayments. This article explains how the family maximum rules work and describes their evolution. We use Modeling Income in the Near Term, Version 6 data to analyze who is affected by the family maximum and to what extent their benefits are changed.
Kathleen Romig is a senior policy analyst at the Center on Budget and Policy Priorities. Dave Shoffner is a social science research analyst with the Office of Retirement Policy, Office of Retirement and Disability Policy, Social Security Administration.
Acknowledgments: The authors thank Joni Lavery, Andrew Hanks, Eric Herbert, Karen Glenn, Mark Sarney, and Natalie Lu for their helpful comments and suggestions.
The findings and conclusions presented in the Bulletin are those of the authors and do not necessarily represent the views of the Center on Budget and Policy Priorities or the Social Security Administration.
How Will My Social Security Benefits Be Calculated
YourSocial Security benefits are based on your 35 highest-earning years of employment. There are a few adjustments made to account for inflation. If you have worked less than the requisite 35 years, you will likely see lower Social Security benefits in retirement.
The Social Security Administration calculated your Average Indexed Monthly Earnings or AIME to determine your final Social Benefits. The AIME is computed by dividing the sum of all your indexed wages by 420. Eventually, your actual Social Security benefit amount is calculated based on various factors, such as the age at which you start collecting benefits. Remember, the SSA will lower your benefits if you start taking them before full retirement age.
How Can I Get My Social Security Estimated Benefits?
Even if you are a long way from retiring, getting an estimate of your future Social Security benefits can be helpful. For those closer to full retirement age, you will likely want to check your Social Security benefits annually. You can register to view your official Social Security work history and estimated future Social Security benefits on the SSA site. Setting up an account is free.
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Why Do You Need To Earn So Much To Max Out Your Social Security Benefits
To understand why your earnings must be so high in order to get the maximum benefit, let’s take a step back and look at how Social Security benefits are calculated. Here’s how the formula works:
- Social Security calculates your average wages in the 35 years your earnings were the highest .
- Your benefits equal a percentage of your average wages in those 35 years.
That’s why your earnings need to equal or exceed the wage base limit for a full 35 years or longer. If they don’t, you’ll have an average wage that’s below the maximum, and your benefits will be below it as well.
Congress Must Act Sooner Rather Than Later
In theory, the AWI problem could be fixed anytime before 2022, when, for example, workers who turn 60 this year are first eligible to retire at the age of 62. But that delay would cause significant anxiety for these workers, whose future benefits would be at risk. Moreover, people decide when to retire based on projections of their incomes in their initial year of retirement and in the remainder of their lives. It would be most unfair to workers decision-making processes to have the expectations of their future incomes be uncertain for some period of time while they are trying to make such an important decision.
Congress needs to act sooner rather than later to ameliorate this problem. One possibility would be to include a fix in the stimulus legislation to cope with the economic effects of the COVID-19 pandemic that Congress is currently considering.
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How To Get The Maximum Social Security Benefit
Few people receive the maximum Social Security check from the government. To defy this and potentially become one of a small handful to bag $4,194 per month, you’ll need to be a high earner over many decades and delay receiving the benefits.
The checklist is as follows:
Here’s How To Pocket The Most Money Possible From Social Security
The maximum Social Security retirement benefit you can collect in 2020 is $3,790 per month, but very few people will receive that big of a payday. Why? Because Social Security benefits are based on each person’s work history, including how many years they worked, how much they earned per year, and when they decided to begin receiving their benefits. Qualifying for Social Security’s maximum benefit requires decades of high-income employment, plus the patience to put off claiming benefits as long as possible. While most people won’t receive the maximum benefit in retirement because of these hurdles, there are still ways to increase the size of your Social Security check substantially.
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How Do Benefits Work And How Can I Qualify
While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to:
- Those who are currently retired
- To people with disabilities
- To the surviving spouses and children of workers who have died
Each year you work, youll get credits to help you become eligible for benefits when its time for you to retire. Find all the benefits Social Security Administration offers.
There are four main types of benefits that the SSA offers:
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Learn about earning limits if you plan to work while receiving Social Security benefits
Fact #: Social Security Provides A Guaranteed Progressive Benefit That Keeps Up With Increases In The Cost Of Living
Social Security benefits are based on the earnings on which people pay Social Security payroll taxes. The higher their earnings , the higher their benefit.
Social Security benefits are progressive: they represent a higher proportion of a workers previous earnings for workers at lower earnings levels. For example, benefits for a low earner retiring at age 65 in 2021 replace about half of their prior earnings. But benefits for a high earner replace about 30 percent of prior earnings, though they are larger in dollar terms than those for the low-wage worker.
Many employers have shifted from offering traditional defined-benefit pension plans, which guarantee a certain benefit level upon retirement, toward defined-contribution plans s), which pay a benefit based on a workers contributions and the rate of return they earn. Social Security, therefore, will be most workers only source of guaranteed retirement income that is not subject to investment risk or financial market fluctuations.
Once someone starts receiving Social Security, their benefits increase to keep pace with inflation, helping to ensure that people do not fall into poverty as they age. In contrast, most private pensions and annuities are not adjusted for inflation.
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Fact #: Social Security Is Especially Beneficial For Women
Social Security is especially important for women, because they tend to earn less than men, take more time out of the paid workforce, live longer, accumulate less savings, and receive smaller pensions. Women represent more than half of Social Security beneficiaries in their 60s and 7 in 10 beneficiaries in their 90s. In addition, women make up 96 percent of Social Security survivor beneficiaries.
Work For At Least 35 Years
The Social Security Administration calculates your final benefit amount based on your earnings for the 35 years when you made the most. It then indexes your annual earnings, which is to say it adjusts for inflation, and then takes the average of the 35 indexed amounts. If you have income for less than 35 years, the SSA will give you a zero for those years short of 35.
Thats why its important to have income for at least 35 years. Those zeroes can bring down your average significantly. The government used to send out peoples annual earnings histories, but stopped in 2011 to save money. Its a good idea, though, to check periodically what the government has recorded for you so you can make any needed corrections. You can do this easily by creating an online Social Security account.
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Rules Common To Both Oasi And Di
The family maximum rules are applied in the same way for both OASI and DI benefits. First, the family maximum amount is established based on the worker’s PIA or AIME. Then, the worker’s benefit is subtracted from the total benefit amount payable to the family. Next, the auxiliaries’ benefits are reduced proportionately. The worker’s own benefit is never reduced only the benefits of his or her auxiliaries are reduced. The benefits for divorced spouses are never reduced.
Maximum Family Benefit Exceptions
The maximum family benefit applies differently in some situations. For example, an ex-spouse is usually entitled to claim benefits based on his or her former spouses earnings record. These benefits dont count against the maximum family limit.
A non-working spouse who retires before reaching full retirement age could qualify for a reduced percentage of the primary breadwinners benefits. And if a family has two earners who are both eligible for benefits, each spouse can receive 100% of their own benefit, even if this would put the family over the maximum. This is because it only applies to benefits that can be claimed based on one earners record.
Another special case is when a minor dependent child is entitled to receive benefits from both retired parents. Then, Social Security uses a different limit, called the combined family maximum. The family maximum in this case can be as high as the total of both parents calculated family maximum, as long as it doesnt exceed the combined family maximum.
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What Is The Maximum Social Security Benefit
The maximum social security benefit is for individuals who, for at least 35 years of working, had earnings equal to or greater than Social Securityâs maximum taxable income.
In 2022, a personâs taxable income cannot exceed $147,000. The maximum benefit varies each year due to the annual adjustment based on changes in the national wage level.
The current maximum monthly benefit is $3,345 for someone who files at full retirement age of 66. However, the maximum payment for individuals who qualify and wait until 70 is $4,194.
For those born in 1960 or later, FRA is age 67. For those born between 1943 and 1954, FRA is age 66, and so on.
For more information on FRA, please see the table below.
You can get more money from your retirement if you wait until you reach your full retirement age.
Social Security is a component of nearly every retirement program for American workers.
It offers qualified retirees and their families replacement income. Knowing how the system works and how much you will receive when you retire is essential.
The percentage of your pre-retirement earnings that Social Security replaces is based on your greatest 35 years of earnings. Higher lifetime earnings will translate to higher benefits.
Suppose you stopped working for a while and had minimal wages. In that case, your benefit reduces as opposed to those who continuously work. Your benefits depend on how much you earn and when you begin receiving benefits.
Your May Have To Pay Taxes On Social Security Benefits
Most people know that Social Security is funded by a tax on earnings, currently 6.2% for the employee . But some retirees dont realize that you may well have to pay income tax on Social Security benefits when it comes time to claim them. Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits havent been increased since then.
It doesnt take a lot of income for your Social Security benefits to be taxed. Your benefits wont be taxed if your provisional income is less than $25,000 if youre single or $32,000 if youre married. If youre single and your provisional income is between $25,000 and $34,000, or married filing jointly with provisional income between $32,000 and $44,000, up to 50% of your Social Security benefits may be taxable. If your provisional income is more than $34,000 on a single return or $44,000 on a joint return, up to 85% of your benefits may be taxable.
The Social Security Administration says about 40% of beneficiaries pay taxes on their benefits. Since the thresholds arent adjusted for inflation, the number of beneficiaries who pay taxes on Social Security benefits increases every year. The Social Security Trustees annual report estimates that taxes on Social Security will total $45.1 billion in 2022, up from $34.5 billion in 2021.
You may also have to pay state income taxes on your Social Security benefits. See our list of the 12 States That Tax Social Security Benefits.
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What If Your Salary Is Below $147000
If your salary is below $147,000 in 2022 or below $160,200 in 2023, you could potentially still earn the maximum Social Security benefit. But to do so, you would need to make sure that 2022 doesn’t count in your benefits calculation. You would need a total of 35 other years of work, during which you earn the maximum countable income.
Most people are not going to be able to pull that off, so don’t count on maxing out your Social Security benefit. Instead, you should realize your own Social Security is going to equal about 40% of your preretirement wages. So you can estimate what your benefit is likely to be and start planning to save enough to supplement that income so you can have a comfortable life as a retiree.
The $18,984 Social Security bonus most retirees completely overlook
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What Is The Social Security Income Limit
The earnings limit is also known as the income limit, or the earnings test. The official term is earnings test, but income limit and earnings limit are the terms that youll hear most often.
For our purposes, know that all these terms mean the same thing and there are four quick facts about the Social Security income limit that you should know before we jump all the way into explaining the test or limit:
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