How to get the Maximum Social Security Benefit

How to get the Maximum Social Security Benefit in 2018

To be clear, in order to get the maximum possible Social Security benefit in 2018, a couple of things need to be true. First, you would need to have earned more than the Social Security taxable maximum in at least 35 different years. Also, you would need to have chosen to wait until age 70 to claim Social Security benefits, and you must be turning 70 during 2018, since the past few years of maximum earnings -- which had higher inflation-adjusted taxable wage caps -- would be necessary to get the highest possible benefit.

As you might imagine, this combination doesn't apply to many people. Only 6% of covered workers have earnings above the taxable maximum in any given year (not every year), and only about 4% of seniors wait until age 70 to claim their retirement benefits. When you consider these statistics and apply them to the roughly 3 million Americans who will turn 70 in 2018, it's easy to see why this isn't a particularly large number.

What is the maximum possible Social Security benefit?

The short answer is that the maximum possible Social Security benefit payable to someone retiring at their full retirement age in 2018 is $2,788 per month, which translates to $33,456 per year.

Just for reference, 66 years old is still the full retirement age in 2018. For Americans born in 1954 or earlier, the Social Security full retirement age is still 66. It will gradually transition to 67 years old for workers born in 1960 or later.

The Social Security a worker is entitled to if they claim benefits at full retirement age is known as the primary insurance amount, or PIA. This is calculated as an average of the worker's 35 highest inflation-adjusted years of earnings, applied to a benefit formula that is modified annually.

It's also worth noting that since the Social Security benefit formula changes each year, the maximum possible Social Security benefit is likely to be somewhat different in future years.

How much do you need to earn to max out Social Security?

To receive the maximum possible Social Security benefit, you'll need to earn more than the Social Security maximum taxable earnings in at least 35 individual years throughout your career.

For 2018, the maximum amount of earnings that can be taxed for Social Security is $128,400. In 2017, the taxable maximum was $127,200. Here's a quick guide to the Social Security maximum taxable earnings for the past several years, just to give you an idea of how this figure can increase over time. (Note: You can find a full historical guide in this worksheet provided by the Social Security Administration.)

It's also important to mention that only earned income is taxable for Social Security purposes. In other words, dividend income, interest income, capital gains, passive business income, and similar sources don't count.

For example, if your total income in 2017 was $150,000, but $50,000 of this amount came from passive sources, you would not have "maxed out" your Social Security earnings from that year.

When you claim can make a big difference in the maximum possible benefit

I mentioned earlier that the maximum Social Security benefit payable to a worker who claims benefits in 2018 at their exact full retirement age is $2,788 per month.

However, there's an eight-year window during which benefits can be started. Eligible workers can start receiving Social Security as early as age 62 or as late as age 70.

Early Social Security results in a permanently reduced benefit. A worker's primary insurance amount will be adjusted downward at a rate of 6.67% per year for up to three years before full retirement age and by another 5% per year for more than three years early. In fact, for a worker retiring in 2018 at age 62, the maximum possible monthly benefit they can get is $2,158 -- $630 less per month than the maximum at full retirement age.

Conversely, delaying Social Security results in a permanently increased benefit. The PIA is increased by a factor of 8% for every year a worker chooses to wait beyond full retirement age, until as late as age 70. This can result in a massive benefit increase for those who decide to wait -- the maximum Social Security benefit for a 70-year-old new retiree in 2018 is $3,698 per month, or $44,376 per year. This is an increase of more than $900 per month from the maximum possible benefit at full retirement age.

How this could change going forward

It's no big secret that Social Security isn't exactly in the best financial shape from a long-term perspective. In fact, if nothing changes, the current projections call for Social Security to run out of money by 2034.

There are several potential reforms that could help fix the problem, so there's no way to know for sure what will change going forward. Having said that, one way to partially solve the funding shortfall would be to increase or even eliminate the maximum taxable wage cap, which would likely increase the maximum Social Security benefit significantly, especially for those who are still years away from retirement age.

The point is that this discussion is about how much you would need to earn to get today's maximum possible Social Security benefit. The maximum benefit in 2019, 2020, and beyond could look rather different, so be sure to check again as your retirement date nears.

Cheers.

Disclaimer: We spend hours researching and writing our articles and strive to provide accurate, up-to-date content. We do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. We recommend that you consult with your own lawyer, accountant, or other licensed professional for relevant business decision