How Is The Maximum Social Security Benefit Calculated?

Last Updated on April 7, 2023

How Is The Maximum Social Security Benefit Calculated?

How is the maximum Social Security benefit calculated? The Maximum Social Security Benefits depend on lifetime earnings and age. A person’s benefit amount depends on earnings, full retirement age, and when they take benefits.

The Maximum Social Security Benefit in 2023

The maximum Social Security benefit in 2023 is $3,627 at full retirement age. It’s $4,555 per month if retiring at age 70 and $2,572 if retiring at age 62.

How is the maximum Social Security benefit calculated?

The size of the Social Security benefit largely depends on the size of a person’s lifetime earnings and the person’s full retirement age. The more you earn and the longer you wait to claim Social Security, the bigger the monthly check you’ll receive. 

Here are some other things to know about how the Social Security Administration calculates retirement benefits.

  1. The Social Security Administration gathers data on up to 35 of your highest-earning years, stopping at age 60.
  2. The Social Security Administration indexes those earnings for inflation so that income you earned in, say, 1993 is revised to reflect what that income is in today’s dollars. 
  3. After that, Social Security applies a somewhat-complex formula to determine your primary insurance amount, which is the benefit payment you would receive if you wait until you reach full retirement age.
  4. You’re also eligible for cost-of-living benefit increases starting the year you turn 62, even if you don’t take your benefits until later.
  5. The Social Security Administration decreases your benefit if you retire before your full retirement age, and it increases your benefit if you delay retirement until after your full retirement age (up to age 70).

How to maximize your retirement income

Social Security alone likely won’t be enough income for many people when they retire, which is one reason that saving for retirement is so important.

One way to boost your retirement income is by putting money into tax-advantaged savings vehicles such as an individual retirement account (IRA).

Contributing to an individual retirement account (IRA)

An individual retirement account (IRA) is a kind of tax-deferred or tax-free retirement account that you can get at many financial institutions. You can use it to invest in stocks, bonds and other assets.

Two of the most popular types of accounts — the traditional and the Roth — allow you to contribute $6,500 per year ($7,500 if you’re 50 or older), even if you’re also contributing to a workplace savings plan such as a 401(k).

  • traditional IRA, you may be able to deduct your contributions, which can reduce your tax bill in the year you contribute. 
  • Roth IRA, you can’t deduct your contributions, but your investments grow tax-free and you can withdraw money tax-free in retirement.

Other ways to boost your Social Security retirement benefits

The more you earn and the longer you wait to begin taking benefits, the larger your monthly Social Security check will be. But waiting longer to claim Social Security and earning more throughout your lifetime aren’t the only ways to increase your benefit.

  • spousal benefit, which can be as much as 50% of what your spouse receives at full retirement age if they’re the higher earner — even if you’re divorced.
  • survivor’s benefits, which can be up to 100% of the deceased’s benefit amount, plus a one-time Social Security death benefit of $255.

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