Retirees receive different benefit amounts based on several factors.
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Needless to say, Social Security is a large and complex program, with more than 74 million Americans receiving benefits each month. Social Security retirees can claim benefits at different ages, and the amount of benefits they receive varies widely depending on important factors, such as how many years they worked, how much they earned over their career, and when they decide to claim benefits.
Currently, the maximum monthly Social Security check is $5,108, or $61,296 per year. The salary required to receive maximum benefits is:
work long hours and earn a lot of money
The Social Security Administration (SSA) uses a formula to calculate benefits, so retirees need to understand the key inputs to this formula if they want to claim the maximum benefit, or more realistically, the maximum amount they can receive as they near retirement.
The first big input is years of service, specifically the number of years you paid Social Security taxes from your income. SSA looks at an individual’s highest 35 years of income to calculate Indexed Average Monthly Earnings (AIME). Therefore, you need at least 35 years of work experience to get the most benefits. If an employee has not worked for 35 years, SSA will fill in the missing years with zeros, which has a significant negative impact on AIME.
Another important part of the calculation, and also the most difficult to influence, is how much money the worker made over a 35-year period. To receive the maximum amount of benefits, workers must pay the maximum amount of payroll taxes. Social Security payroll taxes are 6.2% for employees and employers and 12.4% for the self-employed.
However, SSA can only tax a certain amount of an individual’s income, and that amount changes each year based on wage increases. This figure is called the benefit base. The benefit base for the past five years is as follows:
- 2021: $142,800
- 2022: $147,000
- 2023: $160,200
- 2024: $168,600
- 2025: $176,100
Not only can the benefit base increase significantly from year to year, but salaries also tend to be higher than most Americans can afford.
The final factor that affects a retiree’s benefits is the age at which they claim benefits. Retirees can claim benefits as early as age 62 and as late as age 70. However, there are trade-offs. SSA calculates each person’s base benefit based on that person’s full retirement age (FRA). The FRA is age 67 for people born after 1960. Those who claim before FRA will receive a small reduction in benefits calculated as a percentage of their baseline amount for each month they claim early.
On the other hand, those who wait to claim until after FRA will see their benefits increase by a small percentage each month. As a result, claiming benefits at age 62 could reduce retiree benefits by up to 30%, while waiting until age 70 could increase benefits by 24%. To receive the maximum benefit, you must wait to claim until age 70.
Maximum profit is an illusion for most people
Achieving Social Security benefits of up to $5,108 per month is a pipe dream for most retirees because it is difficult to earn more than the benefit threshold each year. In fact, only about 6% of people currently earn an income equal to their benefit base each year, according to the SSA. By comparison, the percentage of people who continue to earn the basic benefit amount for more than 30 years is likely to be very small.
Another reality is that not everyone can claim Social Security until age 70. There is no “right” age to claim Social Security. The choice depends on the retiree’s individual circumstances. If someone is dealing with health issues and needs retirement benefits to cover daily living expenses at age 62, it makes sense to claim benefits early. If someone is financially able, or perhaps still working, it makes sense to postpone.
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