It’s not complicated, although it may be challenging for most average people to do.
It was never meant to be the entirety of anyone’s retirement income. Still, a handful of people are collecting surprisingly sizable Social Security benefits. This year’s maximum monthly payment stands at a solid $5,108, versus a much more modest average of $1,976 per month.
This sweeping disparity raises a two-part question: What did the crowd taking home the very biggest Social Security checks do differently than everyone else, and can you do the same for yourself?
The answer to the second part of the question is, yes, you can do the same. And while the maximum payment is likely to change over time, thanks to annual cost-of-living adjustments (COLAs), here are three things these fortunate folks did to earn that maximum payment.Â
1. Plan on working for at least 35 full years
Everyone’s Social Security payments are determined by a relatively simple mathematical formula. Part of this formula considers the sheer number of years you earned work-based income. To maximize this piece of the calculation, you’ll need to work for at least 35 full years.
That sounds like a lot. And it is.
It’s not nearly as uncommon as careers of this length used to be though. Data from the Employee Benefit Research Institute as well as the Transamerica Center for Retirement Studies both suggest that the average American now retires at the age of 62. That’s 44 years’ worth of adulthood in which someone could — in theory anyway — be earning taxable income. Although it’s somewhat rare for anyone to actually work every single year of their adult lives, even folks who stayed out of the workforce for a while have enough time to squeeze in 35 years’ worth of wages.
Don’t worry if you know you’re not going to be able to work a full 35 years though. Your benefit calculation is simply reduced a bit for every year less than 35 that you’re not employed.
Conversely, working for more than 35 years may or may not help. Keep reading to find out why.
2. Earn an inflation-adjusted equivalent to $176,000
Simply working for 35 years alone won’t necessarily secure you the maximum Social Security checks in retirement, however. You’ll also need to earn a minimum amount of money in each of these years… and it’s no small amount. This year, you’ll need to earn at least $176,000 worth of taxable work-based income to get the most credit the Social Security Administration is willing to give you when determining your eventual monthly benefit.
This wasn’t always the number. It’s regularly adjusted for inflation. Last year the cap was $168,600. In 2015 the program stopped imposing its payroll tax after the first $118,000 worth of wages, since the Social Security Administration ceased adding any future benefit beyond that mark. Back in 2000 the number was $76,200, while in 1985 the Social Security-taxable income ceiling stood at $39,600. You would have needed to reach or surpass every year’s earnings threshold for at least 35 years to bring home the biggest possible Social Security checks in retirement.
That being said, the Social Security Administration does offer a bit of help on this front.
Although the calculation of your benefits payment maxes out at 35 years of wage-earning work, these years don’t need to be your most recent 35 working years, nor do they even need to be 35 consecutive years. The program considers your 35 highest-earning years (relative to each year’s income threshold) when determining your monthly payment. That’s why it could pay to continue working more than 35 years, if you’re earning at least as much as the program’s current maximum taxable amounts.
3. Hold off claiming benefits until you turn 70 years old
Finally, anyone collecting monthly Social Security checks of $5,108 right now waited until they turned 70 before initiating these benefits, bumping up their intended payments as a result. Had they claimed at this year’s full retirement age (or FRA) of just under 67, the best they could hope to do is $4,018 per month even if they met Social Security’s taxable income threshold for at least 35 years. And for perspective, anyone claiming early benefits at the earliest possible age of 62 would — at best — be bringing home $2,831 per month. Keep in mind, these numbers will change over time with COLAs, but this should give you a good idea of how claiming at different ages can impact your monthly payment.
These differing amounts reflect the Social Security Administration’s efforts to offer fair and equitable lifetime benefits to all the program’s recipients no matter how they choose to collect them. Early retirees may be seeing measurably smaller checks, on average. But they’ll be collecting them for up to eight years longer than anyone waiting until they’re 70 to initiate their payments will.
On this note, know that there’s no additional upside to waiting beyond the age of 70 to file for Social Security’s retirement benefits. There’s good reason to claim as soon as you reach this age, in fact. Although the Social Security Administration will retroactively pay you for any missed payments you could have collected once you reached 70 years of age, these retractive payments are capped at a maximum six months’ worth of benefits no matter how long you waited to claim.
