Social Security is likely to be critical to your financial security in retirement. How critical? Well, consider that it supplies about 30% or more of elderly Americans' retirement income, with 37% of men and 42% of women getting 50% or more of their income.
Thus, the more you can get from the program, the better -- and recently, the maximum monthly benefit was $3,895 -- or about $46,740 annually. That might sound pretty good, but read on -- because there's a good chance you won't be collecting that much.
Social Security benefits
Let's start with a little perspective. Recently, the average monthly Social Security benefit was $1,559 -- or about $18,700 per year. Clearly, it will be hard for anyone to live well on just that -- indeed, it's not that far from the poverty level, which was $12,880 for an individual as of 2021.
That's the average, though -- and if you earned more than average over the course of your working life, your benefits will be above average, too. But they will never top $3,895 per month (as of 2021). (By the way, take a moment to appreciate that since $1,559 is the average, many millions are collecting less -- often a lot less.)
To get an idea of how much Social Security income you have coming to you, head over to the Social Security Administration (SSA) website, and set up a "my Social Security" account. Once you've done so, you can pop in any time to see the latest estimates of your future benefits, based on the latest earnings information the SSA has. (You might also spot an error or two -- if so, fixing them can boost your future earnings.)
Qualifying for the maximum benefit
So who receives the maximum benefit, and how do they qualify for it? Well, you'd have had to earn the maximum earnings allowable during your working life, and you'd have to have delayed starting to collect your benefits until age 70.
Maximum earnings don't mean Bill Gates- or Warren Buffett-like incomes. For every year there's an earnings cap beyond which we're not taxed on our earnings for Social Security. For 2021, that limit is $142,800. So you'd need to have maxed out earnings in all your earning years that are included in the calculation.
Here's why age 70 matters: Each of us has a "full retirement age" at which we can start collecting the full benefits to which we're entitled, based on our earnings -- and for most of us, it's 66 or 67. But you can start collecting as early as age 62 and as late as age 70, with your benefit checks shrinking if you start early and getting bigger if you delay. (Of course, starting early means you'll get many more checks, so this isn't quite as big a deal as it may seem.)
For that maximum benefit, you'll have to delay starting to collect until age 70 -- something that's hard for many retirees who need the income sooner. Here's a look at the benefits a maximum earner would receive, according to the SSA:
The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2021, your maximum benefit would be $3,148. However, if you retire at age 62 in 2021, your maximum benefit would be $2,324. If you retire at age 70 in 2021, your maximum benefit would be $3,895.
Increase your Social Security benefits
If you're starting to realize that the $3,895 is probably out of your grasp, know that there are still ways to increase the Social Security benefits you'll get. For example, make sure you work at least 35 years, as the benefits are calculated based on the 35 years in which you earned the most (adjusted for inflation). So if you're planning to retire after working just 30 years, know that the formula will be incorporating five zeroes for five years. Working a few more years can boost your benefit -- especially if (on an inflation-adjusted basis) you're earning more now than ever.
Beefing up your income for a few years can also work, and you might accomplish that by taking on a side gig, such as walking dogs, teaching music or a language, making and selling things online, or doing freelance writing, editing, photography, or web design, among many other options.
So don't fret if you're not going to get the maximum payout (although some of you will get it!). Instead, do what you can to simply maximize the payout that you do ultimately receive. Spending a little time reading up on Social Security can pay off if it helps you get more out of the vital program.
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