Social Security isn’t designed to fully replace your pre-retirement paycheck. If you’re an average earner, you can expect your benefits to replace around 40% of your previous salary. If you earn above average, these benefits can replace even less than your usual income.
Still, it’s a good idea to get as much money from Social Security as possible. You can also try to reach the maximum monthly benefit that the program pays.
This number changes every year. But right now it’s $4,194. Multiply that by 12 and you’re looking at over $50,000 in annual Social Security income withholding maximum monthly benefits. But to overcome this, you must follow these three steps.
1. Have been working for 35 years (or more)
The monthly benefit you are entitled to from Social Security is calculated based on your income during your 35 best-paid years of working life. In order to claim the maximum monthly benefit, you must have been in service for at least 35 years.
2. Earn a high salary for at least 35 years
High earners often find that not all of their income counts toward their Social Security benefits. This is because wages are no longer taxed above a certain threshold every year.
This year, wages over $147,000 will not be taxed or included in your benefit calculation for Social Security purposes. But to get the maximum Social Security amount in retirement, you must have earned at least the equivalent of the annual salary cap during your 35 best-paid years of working life.
3. Delay your submission as much as possible
Although you can sign up for Social Security at age 62, you won’t be able to collect your full monthly benefit based on your payment history until you reach full retirement age, which is 66 or 67, or somewhere in between, depending on your year of birth. However, to receive the maximum monthly benefit, you must defer your filing until age 70.
What if you’re not getting the maximum benefit?
If you are unable to receive the maximum monthly Social Security benefit, you are in good company. Most seniors are not eligible for this maximum benefit because they cannot maintain a high enough salary for three and a half decades.
Also, deferring Social Security until age 70 can be difficult. Often this means putting off retirement, which isn’t ideal for many people.
If you doubt your entitlement to the maximum monthly Social Security benefit, don’t worry. Instead, do what you can to increase your profits. This may mean waiting until full retirement age rather than rushing with an early filing. Or it could mean deferring your filing by a year to slightly increase your benefits without having to spend a lot of extra time in the workforce.
Also, work on building up solid savings so you’re less dependent on Social Security to start with. A monthly benefit that’s half the current maximum might serve you better than having a $1 million nest egg to spare.