Most people aren’t, but that doesn’t mean you shouldn’t try to make the most of the opportunity you’ve got left.
Most U.S. citizens will collect Social Security benefits in the future (if they aren’t receiving them already). But most of these people won’t be cashing the biggest-possible monthly check of $4,555. The average monthly Social Security payment for 2023 is just a little over $1,800.
Still, it’s fun to think about getting a much larger monthly payment, which could make the difference between living comfortably or constantly worrying about running out of money.
How close are you to this kind of payout? Here’s a rough look at what it takes to top out your future Social Security payments if you’ve not yet started collecting your checks.
You’re on pace to earn at least $160,200 this year…
… and you’ve earned comparable inflation-adjusted annual incomes during your lifetime.
While the federal government itself collects taxes on all of your income, no matter how much you earn, that’s not the case for Social Security purposes. Since your eventual Social Security benefits upon retirement are ultimately capped, so too is the amount of income that is taxed for the purpose of determining your future Social Security benefits payments. This year, the Social Security Administration will only tax the first $160,200 of your income.
This figure has grown every year since the inception of the Social Security program but hasn’t necessarily grown at a consistent, inflation-based pace. Last year’s maximum amount of income taxed by the Social Security Administration was only $147,000. Twenty years ago, the figure was only $87,000. Back in 1983, only the first $35,700 of your wages was taxed for Social Security purposes. The uneven growth of the amount of income taxed by Social Security reflects a combination of inflation, lengthening lifespans, and a changing number of people contributing to and withdrawing from the administration’s pool of funds.
Suffice it to say, however, if you’ve been a (very) high relative earner for most of your working life, you should see the upper end of monthly Social Security payments. If you haven’t, you won’t.
You’ve earned this maximum taxable income for at least 35 years
If you’re looking for a specific number, being a “high relative earner for most of your working life” means you’ve earned at least the maximum amount of income taxed by Social Security in at least 35 tax years.
This doesn’t necessarily mean that working for more than 35 years undermines your eventual monthly check. It’s also not to suggest you had to meet or exceed the maximum taxable income threshold in 35 consecutive years or even the 35 most recent years to collect Social Security checks of $4,555 now or in the future. It’s simply to point out that for the purpose of calculating your monthly benefit, the Social Security Administration only considers your 35 highest-earning years whenever they might have occurred.
But you didn’t work for 35 years? Don’t sweat it. You’ll still qualify for some sort of payment, even if you only worked the equivalent of 10 years’ worth of part-time work.
You’re waiting until you’re 70 years old to claim benefits
Last but not least, if you want the biggest-possible Social Security checks, you can’t claim your retirement benefits until the year you turn 70 years old.
That doesn’t necessarily mean you can’t retire from a job before starting to cash Social Security checks. If, for some reason, you’ve got enough cash stashed away or have a means of supporting yourself between now and then, feel free to retire and simply don’t tell the Social Security Administration you’re ready to start collecting the benefits payments you’re due until you’re 70 years of age. It’s up to you.
Still, if that’s not a viable option, the alternative isn’t too bad. For anyone born in 1960 that also earned the maximum amount of income taxed by Social Security for at least 35 years, they’ll still be cashing monthly checks on the order of $2,572 if they choose to retire this year. And, if they can wait another five years and start receiving benefits when they’re 67 years of age, they’ll be collecting monthly benefits of $3,627 in today’s dollars; bear in mind these amounts will be adjusted for inflation each year.
Start planning today
But you’re still nowhere near being due this maximum monthly Social Security payment of $4,555? That’s OK. There are plenty of things you can do to bolster your future financial picture, no matter how much time you’ve got left until you retire. Obviously, the more time you’ve got left, the better. And working in retirement is still a viable option for many people.
There is one thing you absolutely must do right now, though, if you’re certain your Social Security income isn’t going to be enough when that time comes. That is, start making a detailed financial plan today. Doing nothing and simply hoping for the best down the road is a recipe for disaster. You can start by simply asking Social Security for your estimated monthly payout at various retirement ages.
