Here’s Exactly How to Maximize Social Security’s $4,194 Monthly Maximum | Smart Change: Personal Finances

That’s a huge benefit, especially considering the average retiree only gets $1,661 a month. If you want to try and optimize for it, there are a few steps you’ll need to take – and all of them will be a challenge. Here is what they are.

If you want to have a chance at Social Security’s maximum monthly benefit of $4,194, earning a lot of money is the most important thing you need to do. Specifically, you must earn at least the maximum income that counts in the Social Security benefit formula.

Remember, as mentioned above, that benefits are based on average earnings up to a certain level of income. This maximum income level is why there is a cap on the total benefits paid each month. In 2022, income subject to Social Security tax is capped at $147,000. no matter how much After you only earn that amount. You only pay social security contributions on wages up to this level. And anything you earn beyond that won’t count when the average salary your benefits are based on is calculated.

The amount of income that counts in the benefit formula changes over time. But it will still be the equivalent of that amount after adjusting for wage growth. So if you want to maximize the monthly benefit of $4,194, that’s the minimum you’d need to earn each year.

When the Social Security Administration determines your average salary, it does so by taking into account the 35 years in which your earnings were highest.

This means you need at least 35 years of experience to earn the maximum taxable income. If you’re only 34 when you’ve earned the inflation-adjusted equivalent of $147,000, you won’t get the maximum benefit.

If you manage to earn the required amount every year you work, you can stop at age 35 and be on your way to getting the maximum benefits. But if you have low-income years, you’ll have to stay on the job longer to get the maximum monthly check of $4,194 from Social Security. Working that extra time can push back the years you failed.

Finally, the final step is to ensure that you can apply for Social Security at age 70 for the first time, rather than at a younger age, despite the fact that benefits first become available at age 62. The wait is necessary because if you ask at any time before 70, your benefit will be less than it could be.

The reason your benefits cap at 70 is because Social Security has a system of early deposit penalties and deferred retirement credits. These apply to try to equalize the lifetime income received by early filers and late filers. Your benefit increases each year until age 70, so the maximum benefit is only available to those who wait until they can’t increase it any further.

Ultimately earning the inflation-adjusted equivalent of $147,000 for 35 years and waiting to get social security until age 70 is going to be tough. It’s doable, but you’ll have to scramble to increase your income early on and save a lot of money to support yourself if you can’t work for 70.

While you can set that goal, you also need to save enough to make sure you’re comfortable even if your Social Security benefits end up being well below $4,194 a month.

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