You might be wondering about the maximum monthly benefit you can receive from Social Security if you’re working on your retirement plan. You probably know Social Security is based on your lifetime earnings, but there are limits to how much is taken out and, in turn, how much is paid to you when you retire. The maximum benefit you’re eligible for is higher if you wait until you’re 70 to retire.
In short, the maximum level of earnings subject to Social Security tax is $142,800 for 2021 (up from $137,700 for 2020). It typically increases every year to adjust for the cost of living. The maximum you could begin collecting in 2021 would be $3,895 a month if you had earned the maximum amount for every year since you were 22, and if you waited until age 70 to retire, according to the Social Security Administration (SSA).
There’s little value in these numbers unless you know some basics about Social Security because everyone's calculation is different. Here’s a quick primer on how it works.
How Social Security Is Calculated
Your paycheck doesn’t all go to you. A percentage of your wages is taken out for federal and state income taxes, and then there’s your contribution to Social Security.
The tax rate is 12.4% for 2021, up to the maximum taxable amount of $142,800. So the contribution is limited to $17,707 (12.4% of $142,800) whether your earnings are $142,800 or higher. You pay 6.2%, and your employer pays 6.2% out of their pocket, but you’re on the hook for the entire 12.4% if you're self-employed.
You’ll receive a monthly benefit roughly based on your lifetime of earnings when you're ready to retire. The further away you are from retirement, the harder the forecast is to make, but the SSA’s website has a variety of calculators you can use to estimate your benefit.
The calculators are only as good as your estimate of income and the rules of the program as they stand now. The SSA warns that the laws might change because reserves are expected to be depleted by 2035. Taxes collected will only cover about 80% of scheduled benefits.
In essence, Social Security looks at your 35 highest-earning years, adjusts for inflation and changes in wage levels, then applies a formula. The lowest amounts are dropped if you've worked more than 35 years. You get a zero averaged in for the remaining years if you've worked less than 35 years.
This means that the longer you work, the bigger your benefits check will be, even though you usually only have to work 10 years to be eligible for Social Security. In other words, you want to avoid having 25 years of zeros in your calculation.
Maximum Benefits Depend on Retirement Age
Two things have to happen if you want to receive the maximum benefit. You must earn the maximum allowable for 35 years, and you must wait until age 70 to begin receiving benefits.
You’d get the $3,895 per month we mentioned above if you did both these things and started collecting next year. You’d get $3,113 per month if you earned the maximum for 35 years and retired at your full retirement age (age 66 in this example). And if you started claiming benefits as soon as you could—age 62—you’d get $2,324 per month.
Many people won’t qualify for the maximum benefit because earning the maximum taxable income for 35 years is no easy task. You might eventually reach the threshold, but it could take decades.
Remember, too, that the Social Security program is designed to reflect changes in the standard of living, so the maximum taxable amount is likely to increase. It was $137,700 in 2020, and just $118,500 in 2015. The maximum in 2021 is $142,800.
Similarly, the benefit amount is automatically adjusted for cost of living increases. If someone under our best-case scenario retired in 2010 at age 70, they initially received $3,119 a month. In 2020, that same person would have received $3,895 a month.
- It may make sense to work a few extra years if you’re close to retirement and your annual earnings have tended to increase—not only so you can retire at 70 instead of earlier, but so you can benefit from the higher-earning years.
- Start planning early if you're still young. You might want to work with a financial planner to assess how to maximize your benefits and consider options for supplementing your retirement savings.