Due to an increase in the longevity and lifespan of Americans, they are enjoying longer retirements necessitating additional income to live comfortably in retirement. One way you can boost your retirement income is by maximizing Social Security benefits. Social Security is a federal benefits program that offers retirement benefits to qualified retirees including their spouses and children. The program also provides partial replacement income to individuals with disabilities along with their dependents. Officially known as Old-Age, Survivors, and Disability Insurance (OASDI), it serves as a source of retirement income that allows retirees to meet their living expenses.
Simply put, getting the maximum Social Security benefits depend on the age at which the individual begins claiming them. For example, if you started claiming your benefits at age 66 in 2022, you would have received a check for $3,345 per month. However, if you’d waited till age 70, you would have received a sum of $4,194 per month. This is the highest benefit that a qualified individual can receive who delays claiming their Social Security benefits. If you wish to maximize your Social Security benefits as per your unique financial needs and goals, reach out to a professional financial advisor who can advise you on what age you should consider claiming your Social Security benefits.
This article discusses Social Security benefits, how they are calculated, how to maximize them, and its eligibility criteria.
What is the maximum Social Security benefit?
Your Social Security benefits depend on a number of factors. First, to qualify for Social Security you need to earn 40 credits or work for a minimum of 10 years. Your Social Security benefits check is calculated by combining your 35 highest-paid years and the age at which you choose to begin claiming your benefits.
Maximum Social Security benefit refers to the maximum amount of money you can receive from a Social Security check. The value of the check changes each year and depends on the age of the person drawing the benefit. For example, as per Social Security Administration in 2023:
- The maximum Social Security benefit at age 62 is $2,570.
- The maximum Social Security benefit at age 67 is $3,636. This is considered to be the Full Retirement Age (FRA). When you reach FRA, you are eligible to receive full Social Security retirement benefits. For folks born in 1955, the FRA is 66 years and two months. The FRA keeps increasing gradually. For individuals born in 1960 and after, the FRA is 67.
- The maximum Social Security benefit at age 70 is $4,559.
As you can make out from the above-mentioned figures, if you begin claiming your Social Security benefits at age 62, you will receive a much lower amount compared to if you had waited till FRA. Let us find out how Social Security is calculated.
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How to calculate Social Security benefits
- Combine the total compensation received by you during your 35 highest-earning years. If you have worked for exactly 35 years, each year’s annual income is considered. If you have worked for less than 35 years, then a zero value is assigned to the non-working years.
- Adjust the salaries for inflation to find out the current buying power of the total income earned by you. For example, the real value of $1,000 in 1990 will be quite different from its value in 2022 after indexing for inflation.
- Once your total income has been adjusted for inflation, your average indexed monthly earnings (AIME) value is calculated. This is done by dividing the sum of all indexed wages by 420 (number of months in 35 years)
- Once you have calculated your AIME, find out the Social Security benefit value by using the Primary Insurance Amount formula. The formula considers the year the worker will collect benefits, the AIME value, and the cost-of-living adjustment (COLA).
What are the eligibility criteria for claiming maximum Social Security benefits?
To claim maximum Social Security benefits, your earnings must be more than or equal to the maximum taxable income for at least 35 highest-paid inflation-adjusted years of your working life. For 2023, the maximum taxable income is $160,200 up from $147,000 in 2022. This number is revised every year based on national wage levels and the prevalent rate of inflation. Thus, the value of the maximum Social Security benefit changes each year as well.
How to get the maximum Social Security benefits
As stated above, the value of your Social Security benefits check primarily depends on the age at which you retire. According to the Social Security Administration, the value of an average Social Security benefits check was $1,550.48 in October 2022. To receive the maximum Social Security benefit amount i.e. $4,559, you have to be a high-income earner for at least 35 years as well as delay claiming your Social Security benefits till the age of 70. Let us discuss how you can earn the maximum Social Security benefits in detail.
1. Max out your contributions during your working years
To maximize your Social Security benefits, you need to first calculate the average of your 35 highest-earning years after adjusting them for inflation. You can significantly boost your benefits at retirement if you contribute the maximum during your working years. One thing you should note is that the value of your Social Security benefits changes annually based on the national average wage.
2. Delay claiming benefits till age 70
The value of your Social Security benefits check is at its maximum value at age 70. So, ideally, you should wait till you turn 70 to start claiming your benefits despite having the option to begin making withdrawals at 62 to maximize your Social Security benefits. For 2023, the difference in the amount of maximum Social Security benefit between ages 67 and 62 is $1,066 per month. And if we compare withdrawing Social Security benefits at age 62 and age 70, the difference is a little more than $2,000 per month. This works out to a total of $24,000 per year which is a significant number. Do note that your benefits do not improve further if you defer your withdrawals beyond 70.
When should you start claiming your Social Security benefits to maximize them?
As discussed above, your Social Security benefits do not increase in value once you turn 70. Thus, there is monetary benefit in delaying claiming your benefits beyond 70 years of age. Moreover, the decision to withdraw your benefits should be based on your financial plan, present and future financial needs rather than the value of dollar. For example, it would be wise to claim your benefits to pay off your debt or in case of a health emergency.
To conclude
The age at which you choose to retire can result in a difference of $2,000 in your monthly Social Security benefits. To maximize your benefits, you must consistently earn a high income for 35 years and delay claiming the benefits until you turn 70. That said, every individual has different needs and goals and may be unable to wait till 70 to maximize their benefits. Consider your age, standard of living, economic status, life expectancy, financial health, among other factors at the time of deciding when to start claiming your Social Security benefits. If you need guidance on the same, do consult with a financial advisor.
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