If you wait until you are 70 years old to start getting Social Security, your monthly payment could be a lot higher. This extra money can make a big difference for a lot of people, especially those who depend on Social Security as their main source of retirement income.
The higher benefits for delaying claims can give retirees more financial security in their later years, making it easier for them to handle rising prices and healthcare costs. To figure out how much money you need to make to get the maximum Social Security benefit, you need to know how it is calculated.
The Social Security Administration (SSA) considers three main factors
The SSA doesn’t just look at your most recent income; they look at all of your earnings over the course of your career, taking inflation into account until you turn 60. When you turn 60, these earnings stop being changed. The SSA can get a more accurate picture of your lifetime income this way, by taking inflation into account to make sure that past earnings are comparable to present values.
To figure out your average monthly income, the Social Security Administration (SSA) picks the 35 years with the highest wages over the course of your career, taking inflation into account. This average monthly amount is then used in a certain way to figure out your Primary Insurance Amount (PIA), which is your base monthly benefit.
This formula is progressive, which means it’s meant to replace a larger share of low-income earners’ income than of high-income earners’ income. This is done to help people who may need it the most.
Your full retirement age (FRA) changes based on the year you were born. People born between 1943 and 1954 have a FRA of 66 years, while people born after 1960 have a FRA of 67 years. Your monthly amount will go down if you decide to claim your benefit before you reach your FRA.
On the other hand, if you wait to claim benefits past your FRA, your monthly benefit goes up until age 70, which is another reason for people who can afford to wait.
This increase can be as much as 31% compared to the amount you’d receive if you claim benefits at your FRA, a difference that can substantially impact retirees looking to maximize their income.
Achieving the maximum Social Security benefit
You won’t be able to get the most out of Social Security just because you had a high salary for a short time. To be eligible, you must have consistently made more than a certain taxable wage limit for at least 35 years.
This taxable wage limit tells you how much money the Social Security Administration (SSA) will tax each year. Any extra money you make over this amount doesn’t get taxed by Social Security and, more importantly, doesn’t affect how much you get in retirement.
In 2025, the maximum benefit will only be given to people who have consistently made more than the taxable wage limit. This income level is also changed from time to time to keep up with inflation and rising living costs.
As these limits rise over time, people must also see their wages rise at the same rate to keep getting the most out of the benefit.
For instance, if the maximum wage that is taxed goes up from one year to the next, you would need to make sure that your income also goes up to stay above this limit.
The SSA wants to make sure that the maximum benefits are in line with changes in the economy as a whole, so that the relative value of Social Security benefits stays the same over time.
Additional considerations: birth year and age when you claim benefits
A high salary is important, but it’s not the only thing that matters to get the most out of your job. It’s also important what year you were born and how old you are when you decide to start getting benefits.
Some examples: People who turn 70 in 2025 will be able to get the most money each month, $5,108, because benefits are calculated based on the person’s birth year. Over time, the formula for Social Security changes a little, which can affect how much you get in retirement.
You have to wait until you are 70 years old in 2025 to file your claim if you want to get the most money. If you start getting benefits before this age, the amount you get each month will be less. If you wait until you are 70 years old, on the other hand, you will get the biggest monthly payment for the rest of your life.
To make this choice, you have to weigh the possible benefits of a bigger payout against the need for income in the years before you turn 70. The choice you make will depend on your personal finances and health.
If you’re healthy and expect to live a long time, choosing when to claim benefits can be especially important because the higher monthly benefits will last throughout your retirement. For people with health problems or a shorter expected lifespan, on the other hand, claiming earlier may be a better option, even if it means getting less each month.
Is achieving the maximum benefit realistic?
Few people are able to meet the requirements to get the maximum Social Security benefit. A very small number of people meet all the requirements, which include keeping a high income for at least 35 years, contributing for the required number of years, and waiting until age 70 to start getting benefits.
People who meet these requirements usually have had long and successful careers and have saved extra money for retirement to cover their income needs. They may also plan to keep working after age 70.
Aiming for an income level that maximizes Social Security benefits is a good idea for most people, but they also need to save and invest while they’re working. Using savings and investments to build a diversified retirement plan can make a big difference.
This method gives people options; they can retire before age 70 if they want to, without having to rely on Social Security as their only source of income.
If you have a well-thought-out retirement plan, you can choose to stop working at age 60 or 65 if you want to. Social Security is just one part of a bigger financial plan.
This gives retirees the freedom to enjoy their golden years without having to worry about money because they aren’t relying only on Social Security.
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