A Little Bit On Social Security
Unfortunately, most people wont be able to get the max Social Security benefit like your good old Uncle Jim. Thats because the maximum figures are based on the total of your highest 35 years of earnings.
So to get the max benefit for 2022, Uncle Jim wouldve needed to earn at least $147,000 annually in his top 35 earning years. During that time, he wouldve contributed the maximum possible amount toward Social Security and his employer wouldve done so as well. Note that the taxable maximum amounts change over time based on cost of living adjustments.
Heres a look at how taxable maximum amounts have changed in the past five years:
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Social Security’s Maximum Payment May Surprise You
If you’re retiring and you qualify for Social Security‘s maximum benefit, you could pocket $3,895 per month in Social Security income in 2021. You’ll only collect that much money if you begin receiving benefits at 70 years or older, though. The maximum amount you can collect this year if you file at age 62 is $2,324, and the maximum paid if you’re 66 is $3,113.
However, you should know Social Security’s formula is complex and collecting the maximum benefit depends on many things, including the length of your work history. Here’s how Social Security calculates maximum benefits and what you can do to get the biggest possible payout.
Image source: Getty Images.
Retire Early Get Less Retire Later Get More
In 2000, Congress raised the full retirement age to help offset the financial costs of increasing life expectancies among Americans.
For those born in 1937 and earlier, full retirement remains at age 65. However, for those born after 1937, the full retirement age increases incrementally until those born in 1960 and after will have to wait until age 67 to receive full benefits.
Despite this, anyone who has paid into the system for at least 10 years can start receiving benefits as early as the first full month after reaching age 62. However, accessing benefits at 62 will permanently decrease the amount you may receive each month by 20 to 30 percent. Conversely, if you delay taking benefits past your full retirement age, your monthly benefits will increase until you turn 70 and reach the maximum benefit amount.
The decision to receive Social Security benefits before full retirement age is contingent on individual circumstances. Even the month in which you choose to begin benefits may make a difference. In addition, other benefits may be available if you are eligible. Not everyone has the financial flexibility to defer Social Security benefits, but if youre considering it, you must compare the advantage of increased monthly benefits against the cost of receiving benefits for fewer years.
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What Are Social Security Disability Benefits
Social Security disability benefits come from payroll deductions required by the Federal Insurance Contributions Act to cover the cost of Social Security benefits, such as retirement and spousal and survivor benefits. Some of this funding goes into the Disability Insurance Trust Fund and pays for disability benefits.
According to the Social Security website, to qualify for Social Security disability benefits, you must have worked a certain length of time in jobs covered by Social Security. Generally, you need 40 credits, 20 of which were earned in the past 10 years, ending with the year you became disabled. You must also have a medical condition that meets Social Securitys definition of disability.
Younger workers might qualify with fewer credits.
SSDI should not be confused with Supplemental Security Income , which pays benefits to those who have financial needs regardless of their work history. Although these two names sound similar, the qualifications to get the payments and what you might receive are very different.
Heres The Maximum That You Can Get From Social Security
Social Security retirement benefits are not the same for all retirees. The amount of your monthly benefit can vary greatly based on a number of different factors, from when you decide to claim Social Security to how much you earned during your career. However, there is a maximum allowable Social Security retirement benefit. Ironically, the highest payout is reserved for those who arguably need it the least. If youre aiming to snag this top payout, heres what youll need to do.
Social Security 2022: How the COLA Will Increase Benefits for the Average Senior Couple
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Benefits For Your Spouse Or Common
Allowance
If you are eligible to receive the Guaranteed Income Supplement, your spouse or common-law partner may be able to receive the Allowance if your spouse or common-law partner:
- is 60 to 64 years of age
- is a Canadian citizen or a legal resident
- resides in Canada and has resided in Canada for at least 10 years since the age of 18
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Watch How Much You Earn In The Years Preceding Full Retirement
The SSA has imposed earning limits for individuals who have entered early and full retirement. Those limits, and the impact on your earnings, depend on how close you are to your full retirement age.
In 2022, an early retiree can make $19,560 in gross wages or net self employment earnings without penalty. Any overage will result in $1 deducted from the Social Security check for every $2 earned above this amount. Once you reach the year of your full retirement age, you can bring in $51,960 prior to the month of your full retirement birthday without penalty. For every $3 earned above this amount, the SSA will deduct $1 from your Social Security payment. These limits also affect the amounts family members can receive from your claim.
Once youve reached full retirement age, earnings do not impact your benefits.
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About The Authortrue Tamplin Bsc Cepf
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance , author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on , or check out his speaker profile on the CFA Institute website.
Why Does It Vary By Age
So now that you know why there’s a maximum Social Security benefit, it’s also important to know why there are different max limits for retirees of different age groups. It’s because benefits increase as people wait to claim them.
Retirees who are 66 or younger right now have a full retirement age between 66 and four months and 67, but benefits can be claimed any time from age 62 to 70. A retiree who claims benefits at full retirement age gets their standard benefit based on their highest-35-earning years. A retiree who claims before FRA gets a benefit made smaller by early filing penalties, and a retiree who claims after FRA earns delayed retirement credits until age 70 that raise their monthly income.
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So the upper limit for someone who claims benefits at age 62 is much smaller than the maximum for someone who claims checks at 70 because a person who was entitled to the biggest possible standard benefit based on maxing out their income would have had that benefit reduced by claiming at 62, while someone who waited until 70 would have seen it increased.
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The Downside Of Claiming Early: Reduced Benefits
Consider the following hypothetical example. Colleen is 62 as of 2022. If Colleen waits until age 67 to collect, she will receive approximately $2,000 a month. However, if she begins taking benefits at age 62, shell receive only $1,400 a month. This early retirement penalty is permanent and results in her receiving 30% less year after year.
However, if Colleen waits until age 70, her monthly benefits will increase another 24% over what she would receive at her FRA, to a total of $2,480 per month.1 If she were to live to age 89, her lifetime benefits would be about $112,000 more, or at least 24% greater, because she waited until age 70 to collect Social Security benefits.2
What Is The Minimum Social Security Benefit At Age 62
The age-based impacts for the minimum Social Security benefit are nearly identical to regular benefits, with one big exception: There are no increases in benefits for delaying filing beyond your full retirement age.
However, the for filing early still apply. Currently, benefits are reduced as follows if you file for your minimum benefit before reaching your FRA:
- If you file during the 36 month period prior to reaching your FRA, your minimum Social Security benefit will decrease by .555% per month
- If you file anytime before the 36-month period ahead of reaching your FRA, your benefit decreases by .417% per month.
Imagine that an individual who attained full retirement age at 67 had enough years of coverage to qualify for the full minimum Social Security benefit of $950.80. If they filed at 62, there would be a 30% reduction to benefits. This means that for 2022, the minimum Social Security benefit at 62 is $665.
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How Social Security Calculates Benefits
Social Security benefits are based upon how many years you work, the amount of money subject to payroll taxes you earned over your career, and when you first start receiving benefits.
You can start collecting benefits as young as age 62, but you’ll only receive 100% of your benefit amount if you claim Social Security at full retirement age, which ranges from age 66 to age 67 for people born after 1943. If you claim earlier than full retirement age, your benefit amount is reduced. If you claim later than full retirement age, your benefit is increased because of delayed retirement credits.
To determine if you qualify for Social Security’s maximum benefit, Social Security adjusts your historical annual income for inflation and then calculates your average monthly income based upon your highest 35 earning years. If you don’t have 35 years of income, zeros are included in the formula for those years, reducing your benefit and ensuring you won’t qualify for the maximum possible amount.
Once Social Security has calculated your average monthly income, it reduces that amount at specific income levels called bend points to determine your primary insurance amount, or the benefit you’ll receive if you claim at full retirement age.
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:
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How Is The Maximum Benefit Calculated
The main factors taken into consideration for retirees are the age of retirement and the 35 years in which the worker earned the most, as an annual average. Based upon the latter, a formula is applied in which the 35 year average is entered, excluding the last two years of work.
Full retirement age is different depending on the year of birth, meaning different age people will have different retirement ages in which they can receive their full state pension.
What Is The Highest Social Security Payout
For 2021, the top Social Security payout is $3,895 per month. As youll see below, attaining this maximum benefit is not easy, and is based on a combination of your lifelong earnings record and your age when you claim your retirement benefit. The good news is that you have at least some control over these factors, meaning you have the ability to boost your future Social Security benefit.
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Retirement Earnings Test Exempt Amounts
Workers who receive benefits before they reach full retirement age are subject to the retirement earnings test. If your income exceeds certain thresholds, then Social Security will withhold benefits until you reach FRA. Like the Social Security tax limit, these thresholds typically increase annually with the national wage index.
There are two annual earnings test exempt amounts: one that applies to individuals younger than retirement age and one that applies to individuals who reach FRA during that year. For younger recipients, Social Security withholds $1 for every $2 in excess of their exempt amount. Individuals who reach retirement age will have $1 withheld for every $3 in excess of their exempt amount.
In 2022, the earnings test exemption amounts will increase to:
- $19,560 for individuals younger than the FRA
- $51,960 for those who reach their FRA
In other words, an individual who earns $19,560 or less in 2022 may be eligible to receive full Social Security benefits. This is up from $18,960 in 2021.
Does The Social Security Cola Formula Accurately Measure Inflation For Retirees
Yes and no.
The COLA formula is based on a broad measure compiled by the Labor Department known as the C.P.I.-W., which reflects price changes for a group of goods and services bought by working people, not retirees. Inflation affects retirees differently they tend to spend more on health care and housing and less on food, beverages and transportation.
Policy experts have debated proposals to replace the C.P.I.-W. with an alternate measure that aims to gauge the inflation experienced by seniors more accurately. That one, the C.P.I.-E. , has sometimes run about two-tenths of a percentage point higher than the C.P.I.-W. a meaningful difference as it compounds over many years of retirement. However, the C.P.I.-E. would not always yield a higher COLA. For example, the 5.9 percent COLA awarded for 2022 would have been 4.8 percent had C.P.I.-E. been in use, according to data from the Center for Retirement Research at Boston College.
And the difference between the two measures has been shrinking. The C.P.I.-E. has been tracked since 1983, and during its first 20 years, it rose almost 0.4 percentage points per year faster than the C.P.I.-W., according to the center. But in the last 20 years, the gap declined to 0.05 percentage points.
The cost of medical care has been rising at a slower rate. At the same time, transportation costs have been rising more quickly but this is a category where older people are less affected, since they travel less.
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How To Boost Your Social Security By $10000 Per Year
The average benefit amount as of August 2022 is around $1,673 per month, according to the Social Security Administration.
Say, for example, you have an FRA of 67 years old, and by filing at that age, youd receive $1,673 per month. If you began claiming at age 62 instead, your benefit amount would be permanently reduced by 30%, leaving you with around $1,171 per month or $14,052 per year.
On the other hand, if you delay benefits until age 70, youd receive your full benefit amount plus an extra 24%. That amounts to around $2,075 per month, or $24,900 per year. In total, thats $904 per month more than youd receive by filing at age 62.
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What Can You Expect To Receive From Social Security
You dont have to worry about any big surprises. The SSA makes it easy to track your future benefits throughout your entire career.
All you have to do is set up a my Social Security account at the SSA website. You can track your future benefits, as well as apply for Social Security, request a replacement Social Security card and manage your current benefits.
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Find Your Social Security Full Retirement Age
You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. But first you have to know what it is.
Also known as normal retirement age, your Social Security Full Retirement age is the age at which youre entitled to 100% of the Social Security benefits youve earned. FRA is 66 for beneficiaries born between 1943 and 1954 it gradually increases to 67 for beneficiaries born in 1960 or later. If you take benefits before FRA, your benefits will be reduced. If you file at age 62, for example, benefits will be as much as 30% lower. More on that in a moment.
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