In 2022, the maximum monthly Social Security benefit is $4,194. This would provide a generous retirement income of $50,328 for those who receive it.
However, most people don’t come close to maximizing their benefits. In fact, the average monthly retirement check is only $1,657, which means the typical senior receives $2,538 less per month than the largest possible check. So the big questions are, why are so many people failing so few, and are you going to get closer to maximum benefit?
Here’s why most seniors fail to max out their Social Security checks
The average Social Security benefit is much lower than the maximum benefit because retirement income is based on average earnings over your career.
You see, Social Security benefits are supposed to replace about 40% of pre-retirement income for most workers and less for wealthier employees, because the benefit formula is progressive. The social security administration:
- Collects data on salaries earned each year.
- Adjusts salaries to inflation.
- Applies a formula that gives retirees benefits equal to a percentage of their average earnings during their 35 highest earning years.
This is how the standard benefit is calculated. Then, this standard benefit is adjusted based on a person’s age when they first start receiving Social Security checks.
There is, however, a maximum salary that counts each year when building your Social Security earnings record. If you earn above the maximum salary, any extra dollar of income is not deducted from Social Security taxes and does not count when your average salary or benefits are determined. The maximum average wage, called the base wage limit, exists to prevent people who earn millions a year from huge Social Security benefits.
In order to obtain the maximum benefit of $4,194, a retiree would have to earn an amount equal to or greater than the basic salary limit for 35 full years. Then, because the age at which benefits are claimed also affects the amount of checks, they should wait to claim Social Security until age 70, when benefits peak and there are no more benefits to to delay. That’s eight years after Social Security benefits first became available at age 62.
Earning an amount equal to the base salary limit is not easy, especially when you have to do it every year for a period of 35 years. The exact amount of this limit is adjusted each year for inflation, but the amount needed is $147,000 in 2022 and is the inflation-adjusted equivalent of that amount each year. Since most people don’t make that much money, and most people apply for Social Security well before age 70, it’s easy to see why the average benefit is so much lower than the maximum benefit.
What can you do if you don’t reach the maximum benefit?
Since there’s a good chance you’ll receive far less than $50,328 in retirement money from the Social Security Administration, you need to be prepared for the reality of the extent of your benefits. You can find out by visiting mySocialSecurity.gov, logging into your account, and estimating at what age you will first claim benefits.
Since you might be surprised to find out how low typical benefit amounts are, it’s important to do this step early so you can start preparing for smaller-than-expected Social Security payments. If you have a realistic idea of how much help Social Security provides, you can make sure you set savings goals that will give you the security you deserve as a retiree.
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