We all know that Social Security (SSA) is a crucial pillar for most retirees in the United States, but it should not be your only source of retirement income. Contributing regularly, even modest amounts, to an Individual Retirement Account (IRA) can generate a considerable fund over time. The Social Security Administration itself acknowledges that its program was never designed to be the sole source of retirement income.
Some people manage to receive surprisingly high Social Security checks, up to $4,873 each month. But how do they do it? And can you reach that amount too? The answer is yes, and here’s how to achieve the maximum monthly Social Security benefit when your time comes.
Monthly Social Security Checks of $4,873: Is It Possible?
The amount of your Social Security benefits is based on your taxable earnings during your working years: the more you earn now, the more you will receive later. However, there is a cap. Unlike income tax, in 2024, the Social Security Administration stops deducting additional Social Security taxes once your earnings exceed $168,600. This is because taxing income above that amount will not increase your monthly payments when you claim your retirement benefits.
This cap varies each year. For example, in 2023, the limit was $160,200, and in 2022, it was $147,000. In 2004, the cap was $87,900, and in 1984, it was $37,800. Therefore, to get the highest possible monthly payments when you retire, you need to be a relatively high earner throughout your career.
Maintain High Earnings for at Least 35 Years
To receive the maximum monthly Social Security checks, you need to not only earn well this year but also maintain high earnings for many years. Specifically, you must reach or exceed the Social Security’s inflation-adjusted taxable earnings limits for at least 35 years. This is because the SSA calculates your benefits based on your 35 highest-earning years. Earning more than the cap for more than 35 years does not increase your monthly benefit, but earning less during those key years will reduce it.
If you have the option to defer some income to another year or work a bit longer to complete 35 years of high earnings, it may be advantageous to do so. This ensures that you maximize your Social Security benefits.
Delay Claiming Benefits Until Age 70
Last but not least, delaying your Social Security benefits claim can increase your monthly payments. Even if you have earned enough money over enough years, you must wait until you are 70 years old to claim benefits if you want to receive the maximum monthly check of $4,873. If you claim at age 67, the maximum you can receive this year is $3,822, and if you claim at age 62, you cannot collect more than $2,710 per month.
Planning and Diversification
Knowing that you probably won’t reach the maximum Social Security benefit is okay. Most people don’t, and less than 2% of participants receive monthly checks of over $4,000. The average monthly payment this year is around $1,900. But that doesn’t matter too much, because Social Security was never meant to be a complete retirement plan. It was designed to supplement the income generated by your own retirement savings.
Importance of Personal Savings
Investing $300 a month in an S&P 500 index fund, for example, could be worth more than $1 million after 35 years. Starting to save is the hardest part, but even if you’ve already begun, now is the time to take it to the next level by saving a little more and improving your overall returns. Your ultimate goal should be to reach a point where you are not worried about whether you are claiming the maximum Social Security benefit.
Maximizing your Social Security benefits by up to 28% is possible if you understand and apply the right strategies. The key is to know when to claim your benefits, maintain high earnings for at least 35 years, and consider suspending benefits to accumulate delayed retirement credits.
Additionally, careful planning and diversifying your income sources are essential to ensuring a solid and worry-free financial future. Take advantage of investment opportunities and save consistently to supplement your retirement and enjoy financial stability in your golden years.
