Can you get the maximum Social Security benefit when applying early at age 62? | Smart Change: Personal Finances

The first step in calculating your Social Security benefit is to determine your indexed average monthly income (AIME). To do this, the government adds up your earnings during your 35 highest earning years, adjusted for inflation, and divides it by 420 – the number of months in 35 years. But there is a catch for high earners.

The government only counts the money you paid Social Security taxes on in a given year, and it’s not always the same as your income. In 2022, for example, you only pay Social Security taxes on the first $147,000 you earn. So whether you earn $150,000 or $1 million, the government will only count $147,000 when assessing your income for that year.

Once the government has your AIME, it plugs it into a benefit formula, which varies depending on your year of birth. The current formula for Social Security benefits looks like this:

1. Multiply the first $1,024 of your AIME by 90%.
2. Multiply any amount over $1,024 up to $6,172 by 32%.
3. Multiply any amount over $6,172 by 15%.
4. Add your results from steps 1-3 above and round to the nearest multiple of $0.10.

In the example above, $1024 and $6172 are called bend points. These change every year. The endpoints you will use are those in effect for the year you turned 62. Here is a table where you can see all the waypoints from previous years.

The results of the above formula indicate the type of benefit you will receive at Full Retirement Age (FRA). It’s between 66 and 67, depending on your year of birth. You must wait until this age to apply for social security if you want to receive all the benefits to which you are entitled according to your work history.

If you apply sooner or later, the government manages your main benefit amount – the amount you are entitled to on your FRA – through another formula.

Each month you apply for benefits under your FRA reduces your checks. Those who enroll immediately at age 62 receive only 70% of their full benefit by check if their FRA is 67, or 75% if their FRA is 66. The Social Security deferral increases your benefit until age 70, when you qualify for your largest checks. This represents 124% of your full check benefit if your FRA is 67, or 132% if your FRA is 66.

In order to earn the maximum $4,194 in Social Security checks, you have to pretty much beat every step of the process. First, you must reach the maximum AIME, which means earning the equivalent of $147,000 in 2022 dollars in at least 35 years. Then you will have to wait until age 70 to register.

For most people, that’s not doable, and even if it is, it might not always be smart. If you have a terminal illness, for example, you can’t get anything from Social Security if you wait until age 70 to apply.

But just because you don’t qualify for the maximum benefit doesn’t mean you’re doomed to small checks. You can use the information we discussed above to pursue your own maximum benefit.

To get started, seize all the opportunities you can to increase your income today. This will help increase your AIME and lead to bigger social security checks at any age. You can try to negotiate a raise, find a better paying job elsewhere, or start a side business to earn extra money.

Try to stay in the workforce for at least 35 years if you can. This will prevent zero-earning years from blocking the calculation of your benefits. If possible, consider working even longer. You will probably earn more at the end of your career than at the beginning. Once you pass the 35-year mark, your most recent, highest-earning years replace earlier lower-earning years in calculating your benefits.

Finally, choose your starting age carefully. If you have a short life expectancy, it’s usually wise to enroll early. Those expecting to reach 80 often get greater lifetime benefits by delaying for a while, but that might not be financially feasible for you. Even if you could delay for a few months, it can lead to bigger permanent checks.

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