How will your Social Security stack up to the $4,194 Max? † Smart Change: Personal Finance

(Kailey Hagen)

Social Security’s wealthiest beneficiaries can expect to receive $4,194 a month — or more than $50,000 this year — from the program, but getting benefits of this magnitude is no easy feat. Patience and a high income are essential, as is understanding how the government calculates your benefit in the first place. If you want to get as much money out of Social Security as possible, 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 calculate your Average Indexed Monthly Earnings (AIME). The government does this by adding up your income over 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 every year adjusted for inflation for 35 years, your AIME would be $4,167.

Image source: Getty Images.

Then the Social Security Administration puts your AIME into a formula to determine your primary insurance amount (PIA). For those turning 62 in 2022, the PIA formula looks like this:

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

In the example above, $1,024 and $6,172 are known as the inflection points. These change every year, and the formulas you use depend on the formula in effect the year you turn 62.

Your PIA tells you how much you’ll get if you claim Social Security at full retirement age (FRA). That’s somewhere between 66 and 67, depending on your year of birth. But many people don’t claim that. For those who start earlier or later, the government runs their PIA through a different calculation to determine their final benefit amount.

Start-up benefits before your FRA shrinks your checks. You will only get 70% of your PIA if you sign up at 62 and your FRA is 67. If your FRA is 66, you will get 75% of your PIA at 62. Each month you defer benefits, increase your checks slightly to you reach 70. That’s 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 easy to see what you need to do to claim the maximum monthly checks of $4194.

First you need to achieve the highest possible AIME. That means you will earn the equivalent of $147,000 dollars in 2022 dollars for at least 35 years of your career. Then you have to postpone the payment until the age of 70, so that you can get your largest possible checks.

For most people, that won’t happen — but you can still use the information discussed above to significantly increase your checks.

How to get the most out of Social Security

You can estimate your Social Security benefit by creating a My Social Security account. Here’s a breakdown of all the money you’ve paid Social Security taxes on over the years, as well as a resource to help you determine your benefits at different starting ages based on your work history.

Check your earnings record and make sure the information here matches your own records. If you notice any discrepancies, complete an Income Adjustment Request form, along with copies of your tax records for that year, and file it with the Social Security Administration. This ensures an accurate benefit calculation.

You can also take steps to increase your income today to help increase your AIME. This may mean that you work overtime, receive a pay increase, change employers or start a side job. Or you can use a combination of these strategies.

Now is a good time to think about when you will also be claiming Social Security. Deferring benefits is generally wise if you can afford to do so and believe you will live into your 80s or beyond. This way you will receive benefits for fewer years, but in general you will probably get more out of the program.

Ultimately, when you claim Social Security is your decision, planning ahead is smart, even if you have decades to sign up for. Knowing how much you get from the program can help you figure out how much you need to save for retirement to enjoy the lifestyle you want.

The $18,984 Social Security Bonus Most Retirees Completely Overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” can give your retirement income a boost. For example, one simple trick can save you as much as $18,984 more… a year! Once you know how to maximize your Social Security benefits, we think you can retire with confidence with the peace of mind we all strive for. Click here to learn how to learn more about these strategies.

The Motley Fool has a disclosure policy.

Leave a Comment