The wealthiest Social Security recipients can expect $4,194 a month — or more than $50,000 this year — from the program, but getting a benefit that size is no small feat. Patience and a high income are key, as is understanding how the government calculates your benefit in the first place. If you want to get the most money out of Social Security, here’s what you need to know.
This is how the government calculates your Social Security benefit
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 dividing by 420 – the number of months in 35 years. For example, if you earned $50,000, adjusted for inflation, every year for 35 years, your AIME would be $4,167.
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Then, the Social Security Administration plugs your AIME into a formula to determine your primary insurance amount (PIA). For those turning 62 in 2022, the PIA formula looks like this:
- Multiply the first $1,024 of your AIME by 90%.
- Multiply any amount over $1,024 up to $6,172 by 32%.
- Multiply any amount over $6,172 by 15%.
- Add your results from Steps 1-3 and round to the nearest dollar.
In the example above, $1024 and $6172 are called bend points. These change each year and which ones you use will depend on the formula in place the year you turn 62.
Your PIA tells you how much you will get if you apply for Social Security at full retirement age (FRA). It’s somewhere between 66 and 67, depending on your year of birth. But many people do not claim then. For those who start earlier or later, the government runs their PIA through another calculation to determine their final benefit amount.
Start benefits before your FRA cuts your checks. You only get 70% of your PIA if you enroll at age 62 and your FRA is 67. If your FRA is 66, you get 75% of your PIA at age 62. Each month you delay benefits increases your checks slightly until you reach age 70. This is when you get 124% of your PIA if your FRA is 67, or 132% if your FRA is 66.
What it takes to claim the maximum benefit of $4,194
Now that you understand how the government calculates Social Security benefits, it’s not too difficult to see what you need to do to claim the maximum monthly checks of $4,194.
First, you need to achieve the highest possible LIKE. This means earning the equivalent of $147,000 in 2022 dollars over at least 35 years during your career. Then you’ll need to delay benefits until age 70 so you can get your biggest checks possible.
For most people, this won’t happen, but you can still take advantage of the information outlined above to boost your checks significantly.
How to get the most out of Social Security
You can estimate your Social Security benefit by creating a my Social Security account. Here you’ll find a statement of all the money you’ve paid Social Security taxes on over the years, as well as a tool to help you figure out your benefits at different starting ages based on your work history.
Check your income history and make sure the information here matches your own records. If you notice any discrepancies, complete an Income Record Correction Request Form, along with copies of your tax records for that year, and submit it to the Social Security Administration. This ensures an accurate calculation of benefits.
You can also take steps to increase your income today to increase your LIKES. This could involve working overtime, getting a raise, changing employers, or starting a side job. Or you can use a combination of these strategies.
This is a great time to think about when you will also be claiming Social Security. It’s generally wise to delay benefits if you can afford it and expect you’ll live to be 80 or beyond. This way, you’ll receive benefits for fewer years, but you’ll likely get more out of the program as a whole.
Ultimately, when you apply for Social Security, it’s your call, but planning ahead is smart, even if you’re decades away from applying. Knowing how much you will get from the program can help you determine how much you need to save for retirement to enjoy the lifestyle you want.
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