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Whats The Maximum Social Security Benefit

Whats The Average Social Security Retirement Benefit

What is the Maximum Social Security Benefit in 2022? How is Social Security calculated?

Unsurprisingly, most people wont receive the highest possible Social Security benefit. In fact, as of May 2022, the average payment for retirees is a bit more than $1,600 per month.

As we have mentioned, many factors from the length of your work history to the amount of your lifetime earnings at the point you file for benefits impact this amount.

As a result, you may need to find some creative ways to supplement your Social Security.

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

Social Security Auxiliary Benefits

In addition to the individual benefit the primary earner can claim, eligible family members each can claim auxiliary benefits of up to 50% of the primary earners benefits. The maximum family benefit comes into play when two or more family members claim auxiliary benefits based on one primary earners record.

For example, say a familys primary breadwinner retires at full retirement age and is eligible for a benefit of $2,000 a month. A non-working spouse with no earnings record who has reached full Social Security retirement age can claim an auxiliary benefit of $1,000 a month, equal to 50% of the primary breadwinners earnings record.

Combining the primary breadwinners $2,000 benefit with the spouses $1,000 auxiliary benefit makes a total of $3,000 in Social Security benefits for one family. There is no need to figure the maximum family benefit here, because it only applies when two or more family members claim benefits based on one persons earning record.

Now lets say also that the couple has an adult child who, because of a disability, is also eligible to be paid 50% of the primary breadwinners benefit. This would come to another $1,000 and, added to the benefits paid to the primary breadwinner and non-working spouse, bring the familys total benefit to $4,000.

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You Can Undo A Social Security Benefits Claiming Decision

There arent many times in life you can take a mulligan. But Social Security offers you the chance for a do-over. Lets say you claimed your benefit, but now regret the decision and wish you had waited. During the first 12 months of claiming benefits, you can withdraw your application. You will have to repay all of the benefits youve received, along with any spousal benefits, but when you restart benefits, youll receive a larger amount, just as you would have if you had delayed filing in the first place.

If it has been more than 12 months since you filed for Social Security, you cant withdraw your application and restart benefits at a later date. But early retirees who have returned to the workforce are not totally out of luck: Once you reach full retirement age, you can suspend benefits until age 70. This will enable you to earn delayed-retirement credits of 8% a year . This can add up to tens of thousands of dollars for many people, says William Meyer, chief executive of Social Security Solutions.

Is Social Security Based On How Much You Paid In

Maximum Security: Maximum Social Security Benefit 2013

Average indexed monthly earnings is often used to calculate Social Security payments. This average represents up to 35 years of indexed earnings for a worker. The main insurance amount is calculated using a formula based on this average . The PIA is the foundation for the benefits that a person receives.

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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.

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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How Does Your Age Affect Your Retirement Benefits

Weve already talked about how your income is an important factor in determining how much you can collect in Social Security benefits, but another critical factor is your age.

The full retirement age is 67 for anyone born in 1960 or later. Thats the age at which you can collect your full estimated benefits. But the SSA actually allows you to start collecting benefits as early as age 62. Keep in mind, however, that your benefits will be reduced by 30%. And on the other end of the spectrum, you can wait until age 70 to start collecting benefits and your benefit will increase.

If you expect to have a short retirement due to health issues and arent concerned with your spouses future ability to pay the bills, since theyd inherit your Social Security if theyre lower-earning, most people file early because they hope to get some Social Security, says Thiederman. But its important to recognize that theres risk in this decision.

That risk is that you will live longer than expected and youll actually end up receiving a lower monthly income.

According to Thiederman, waiting until age 70 to collect Social Security can help increase your benefit amount, but you would have to live past age 82 for the extra amount per month to exceed the benefits you didnt collect for the extra years.

If youre unsure of when the best time is for you to start collecting benefits, a financial planner or retirement planning expert can help.

How Is The Maximum Benefit Calculated

What Is the Maximum Social Security Benefit in 2022?

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.

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The 2021 Yearly Threshold

That threshold is equal to the maximum dollar amount that’s used to calculate your Social Security payroll tax. So, to get the maximum benefits, your earnings in each of those 35 years must be equal to or greater than what’s known as your Social Security wage base. That’s the maximum amount of your earnings that are subject to the Social Security tax .

The SSA posts those annual numbers here, at its web site. In 2021, for example, that number is $142,800. In 2011, it was $106,800. In 2001, it was $80,400. The taxable maximum will increase to $147,000 in 2022.

If you fell short of that number in any year, you don’t qualify for the maximum monthly Social Security benefits, Christen says.

If both you and your spouse work and are joint filers, both of your numbers must beat the threshold for each of you to qualify for the monthly max.

How Are Social Security Benefits Taxed

Depending on your situation, you may have to pay income taxes on your Social Security benefits. The IRS requires that you pay income taxes on up to 50% of your Social Security benefits if you meet either of the following requirements:

  • You are a single filer with an income between $25,000 and $34,000.

  • You are a joint filer with a combined income between $32,000 and $44,000.

You can expect to pay income taxes on up to 85% of your benefits if you meet either of these requirements:

  • You are a single filer with an income of more than $34,000.

  • You are a joint filer with a combined income of more than $44,000.

If you are married and you and your spouse file separate income tax returns, you will most likely have to pay income taxes on your Social Security benefits.

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How Can You Calculate Your Expected Payment

To estimate your future Social Security benefit, use the Social Security Quick Calculator. This will give you a snapshot view of your anticipated benefit amount based on your current earnings and expected retirement date.

For a more comprehensive assessment of your Social Security estimate, sign up at the Social Security Administration website for a my Social Security account. Calculations made through your account automatically consider your work history, so theyre more personalized and potentially more accurate.

Just like the Quick Calculator, you can input different values to see how your benefit amount may go up or down an invaluable feature when it comes to retirement planning.

Are You Eligible For The $4194 Max Social Security Benefit

Breaking Down Social Security Retirement Benefits by Age

Social Security doesn’t pay all seniors the same amount of money. Rather, the monthly benefit you’re entitled to will hinge on different factors, and you may end up collecting $2,000 a month during retirement while your neighbor, for example, only gets $1,600.

Meanwhile, there’s a maximum benefit Social Security pays every year. In 2022, that max is $4,194.

Most seniors, however, don’t wind up with that maximum monthly benefit. And that’s not really something to worry about.

Image source: Getty Images.

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Should You Collect Social Security Early

As you can see from the table above, if you wait and collect Social Security at age 66 in 2022, you will get 100% of the benefits you are eligible for.

However, if you start collecting at the earliest age of 62, your benefits will be permanently reduced between 20-25% depending on when you were born.

Also, if you wait until 67, youll get 108 percent of the monthly benefit because you delayed getting benefits for 12 months.

Additionally, if you wait until age 70, youll get 132 percent of the monthly benefit because you delayed getting benefits for 48 months.

Is Social Security Based On The Last 5 Years Of Work

A: Your Social Security benefit is calculated using your best 35 years of employment. And, whether we like it or not, the Social Security Administration still utilizes 35 years and posts zeros for the missing years if you dont have 35 years of employment, according to Andy Landis, author of Social Security: The Inside Story, 2016 Edition.

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Calculating Your Monthly Social Security Benefit

Can you calculate your own Social Security retirement benefit amount? Absolutely! Though the calculation is quite cumbersome, you can manually calculate how much your Social Security check will be when you start your benefits. First, you will need to calculate your average indexed monthly earnings or AIME. You do this by using your 35 years of highest income. If you worked fewer than 35 years, then your earnings will be considered zero for the years in which you did not work. Your earnings for each year are indexed to account for inflation. For example, if you made $65,000 in 2010, then that might be equivalent to $71,000 in todays dollars. Once your earnings are indexed, you will divide that by 420 to come up with your monthly average.

After getting the AIME amount, you will perform some adjustments based on cost-of-living adjustments and the timing of your benefits. Starting your benefits before full retirement age will decrease your benefits. Waiting until age 70 to claim Social Security retirement benefits will add more money to your Social Security payments. If you hear someone mention delayed retirement credits, this means that they are waiting past full retirement age to collect Social Security. The longer you wait, the more credits you have. You reach your maximum credits at age 70, so there is no need to wait past age 70 to start your benefits.

Higher Retirement Earnings Limit

When To File For Maximum Social Security Retirement Benefit

You can still work while receiving Social Security retirement benefits, but a portion of your payment will be withheld if you are under full retirement age . The extent of the reduction depends on how far under FRA you are and the annual earnings limit.

In 2022, individuals under FRA for the full year can earn up to $19,560 without any reduction. But beyond that, $1 in benefits will be withheld for every $2 in income above the limit. For example, an individual under FRA that makes $21,560 during the year would see their benefit reduced by $1,000.

Similarly, individuals under FRA for a portion of the year can earn up to $51,960 without any reduction. But beyond that, $1 in benefits will be withheld for every $3 in income above the limit. For example, an individual that reaches FRA in October but makes $57,960 in the first nine months of the year would see their benefits reduce by $2,000.

The official 2023 earnings limits will not be published until October, but the limits have increased at an annual pace of 2.9% over the past decade. If the next increase falls in line with the average, the low limit would rise from $19,560 to roughly $20,135, and the high limit would rise from $51,960 to $53,485.

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With The Cola Increase At The Start Of 2022 Your Benefit Could Be Higher Than Ever But Inflation Could Have Something To Say About That

The Social Security Administration oversees the financial support programmes available to millions of Americans. Some receive disability support but the majority receive the retirement benefits. In February 2022 around 65 million people received some form of support from the SSA, of which more than 50 million claimed retirement benefits, 77.1 percent of the total.

Each year, the cost of living adjustment adjusts the amount of money recipients of any of the support programmes receive. Usually this is close to the inflation rate during the three months preceding October. There was a 5.9 percent increase in benefits from 2021 to 2022 to reflect the high inflation at the end of 2021.

We can expand Social Security and give millions of seniors a more dignified retirement just by making sure billionaires and the very wealthiest pay their fair share into the system.

Sheldon Whitehouse

The maximum benefit one could receive in 2022 is $4,194 per month. However, this is only for people who retire at 70 beyond the full retirement age of 67. For the majority of Americans, the maximum retirement payment will be $3,345.

However, the 5.9 percent increase, while historic, has been proven to be measly in the face of continued increases in inflation in the first half of 2022. The most recent data shows a year-on-year inflation increase of 8.6 percent. With this number unlikely to fall significantly before October, expect an even greater COLA increase for 2023.

When To Start Your Social Security Benefits

You can start to collect Social Security benefits as early as age 62.

But, under today’s rules, if you wait until what the Social Security Administration calls your full retirement age , your benefits will jump by up to 30%.

Full retirement age increases gradually if you were born from 1955 to 1960, until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67. You can find your full retirement age by birth year in the full retirement age chart.

But full retirement age is not the same as maximum retirement benefits age. That occurs once you reach age 70. Your monthly benefits grow between FRA and age 70.

For every year you delay claiming Social Security past your FRA up to age 70, you get an 8% increase in your benefit.

But your benefits won’t grow any more once you hit the big 7-0.

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about personal finance and active mutual fund managers who outperform the market by picking top-performing growth stocks.

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