What is the Maximum I Can Receive From Social Security?

Derek Notman |





What is Social Security?

In the USA, Social Security is the commonly used term for the federal Old-Age, Survivors, and Disability Insurance (OASDI) program and is administered by the Social Security Administration. The original Social Security Act was signed into law by President Franklin D. Roosevelt in 1935, and the current version of the Act, as amended, encompasses several social welfare and social insurance programs.


How is Social Security funded?

Social Security is funded primarily through payroll taxes called Federal Insurance Contributions Act tax (FICA) or Self-Employed Contributions Act Tax (SECA). Tax deposits are collected by the Internal Revenue Service (IRS) and are formally entrusted to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, the two Social Security Trust Funds.  With a few exceptions, all salaried income, up to an amount specifically determined by is subject to the Social Security payroll tax. All income over said amount is not currently subject to the Social Security tax, and limits always seem to be in question given our aging population and how underfunded the trust fund is. 


Permanent residents in the United States have an individual Social Security number and nearly all working (and many non-working) residents have a Social Security number as it is requested by several businesses. 


What is the purpose of Social Security?

The overall purpose of the social security system to is set up a variety of benefits for America’s aging and disabled populations.  Through the use of taxes raised, the funds are put in trust for the benefits of American citizens who qualify. Specifically, the SSA supports people to:

  • To provide for the material needs of individuals and families;

  • To protect aged and disabled persons against the expenses of illnesses that may otherwise use up their savings;

  • To keep families together; and

  • To give children the chance to grow up healthy and secure.


Source:  Social Security Administration (www.ssa.gov)


The purpose of social security is to ease the crisis of poverty in old age.  Prior to Social Security, about half of senior citizens lived in poverty. These days, that number has fallen to 10%, a decline widely attributed to the program's successes.


Annually, Social Security raises nearly 22.1 million Americans out of poverty and to pay for that, the government levies FICA taxes on every form of reported earnings regardless of source or quantity.  With more than $1 trillion in payments every year, Social Security makes up about a third of all elderly income in America. 


It is important to note that income cut-offs and qualifying ages for Social Security are subject to annual updates.  Unless otherwise specified, all numbers are accurate for 2019 but subject to change.



Reference: https://en.wikipedia.org/wiki/Social_Security_(United_States)


What Is The Maximum Social Security Benefit?


For someone retiring in 2019 at the full retirement age of 65 to 67 years old, depending on the year they were born, the maximum Social Security benefit is $2,861 per month.


However, actual income is a function of what age you retire. Workers can begin collecting Social Security benefits as early as 62 years old, but the longer you wait the more you collect. 


The major break points and corresponding maximum incomes are:


  • Early Retirement at 62, monthly benefits: $2,209

  • Full Retirement at 66, monthly benefits: $2,861

  • Delayed Retirement at 70, monthly benefits: $3,770

  • Workers who delay retirement can increase their Social Security benefits up until age 70. As a result, the absolute maximum someone can get in 2019 will be $3,770 per month.


How the Social Security Administration Calculates Benefits

Social Security is calculated based on AIME, or "Average Indexed Monthly Earnings."  To calculate this, the government indexes your earnings, takes the highest-earning 35 years of earnings,  and averages them together to create a representative annual income. It divides by 12 to get a monthly income, which is the AIME.


The government then runs your AIME through a three-tiered formula to calculate your Primary Insurance Amount (PIA). The formula always uses the same percentages, but the specific cut-offs or bend points change from annually.  


At the time of writing the PIA formula is:


  • 90% of AIME up to the first $926 of his/her average indexed monthly earnings,

  • 32% of AIME greater than $926, less than $5,583, and

  • 15% of AIME greater than $5,583

  • Thus, if you earned $60,000 per year for your entire life and turned 62 in 2019, you would have an AIME of $5,000. The Social Security Administration (SSA) would calculate your benefits as follows:


  • 90% of AIME up to the first $895: 0.9 x 895 = 805.50

  • 32% of AIME between $895 and $5,397: .32 x 4,105 = 1,313.60

  • 15% of AIME greater than $5,397: .15 x 0 = 0

  • You would collect $2,119.10 per month in benefits.

  • The result is then adjusted based on COLA, "Costs of Living Adjustment." This is the figure which the SSA uses to keep recipients' benefits current with inflation. It's also the figure which the SSA uses to adjust your benefits based on retirement age.


This means that the less you earn during your working life, the lower your Social Security benefits will be.  Meanwhile, those most likely to already have robust 401(k)s also would have contributed a lot more to Social Security and thus would receive a higher benefit.


Reference: https://www.fool.com/retirement/2018/10/19/heres-the-new-2019-social-security-benefit-formula.aspx

Reference: https://www.thestreet.com/retirement/social-security/maximum-social-security-benefit-14786537


How to Get the Maximum Benefit

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Now that I’ve given you information on how Social Security works, the next important topic is discerning the difference between $2,861 and $3,770.  How are you able to collect the absolute maximum amount in Social Security benefits? 


  • Retire Late

Once you start collecting checks, your Social Security payments are set in stone, meaning that workers who retire at 62 permanently reduce their lifetime benefits.


If possible, delay your retirement until age 70 - For the time difference between standard retirement age and delayed retirement you will increase your total benefits by nearly 25%.  It is important to note that in this instance, "retirement" doesn't mean when you stop working. It means that retirement kicks in when you claim your benefits. You can leave the office at age 66 or at 40 and still defer benefits until your 70th birthday.


For every year you wait after full retirement age, you raise your maximum benefits by nearly 8%.  If you delay by 12 months, it will make a noticeable difference in the size of your monthly checks.


Now bear in mind that this may not be an option for every worker. Perhaps you have a physically demanding job, or you may well need the money.  Whatever the scenario, there are many reasons to start collecting benefits earlier. But if you can do it, there's nearly $1,000 worth of reasons to wait.


  • Earn More

This is quite self-explanatory and doesn’t need to be elaborated on.  However, up until an income reaches $132,900 (in 2019), every dollar of additional income increases your Social Security earnings.


Your later years are likely to be your best-paying years and for anyone with a work history of more than 35 years, the SSA takes your highest earning years and drops the rest.  So, adding a few years at the height of your career might eliminate those years you spent washing cars post-graduation.


This is a critical issue for people who have less than 35 years of work history. The SSA averages out of 35 no matter what, so if you haven't worked that long they will factor in "$0.00" for the years not worked.


  • Understand the Earnings Limit

Earning income while retired can change your Social Security benefits and it can reduce your benefits if you are younger than the full retirement age.  For young retirees, earning income above the yearly earnings limit reduces your Social Security benefits for that year. For workers who are younger than full retirement age, in 2019, the earnings limit will be $17,640.  The SSA will reduce your benefits by $1 for every $2 you earn above that cap.


In the year at which you reach full retirement age these numbers escalate and for 2019, the yearly earnings limit for someone in the year of their retirement is $46,920 and the SSA reduces benefits by $1 for every $3 you earn above the limit.


Once you reach full retirement age you can earn any amount of money without reducing your benefits.


  • It can increase your benefits if you raise your lifetime income.

If you work after full retirement age, even while collecting benefits, you can raise your Social Security benefits if your net lifetime earnings are increased.  For retirees who continue to work, the SSA recalculates your AIME as new data comes in. If your post-retirement earnings increase your AIME, the SSA will adjust your benefits upward to reflect this.


  • Coordinate With Your Spouse

If your spouse earned more than you did while working, spousal benefits may be a good way to boost your own Social Security income.  The SSA allows the spouse to claim Social Security payments worth up to half of their partner's benefit amount. Potentially, this is a very good option for situations where one spouse earned significantly more than the other, or where one spouse worked and the other did not. Further, when one member of a married couple dies, the survivor is entitled to the deceased spouse's full benefit payment.


However, this will not stack with any existing benefits and if you have Social Security payments of your own, the SSA will issue a joint award equal to the higher of your eligible benefits.  File and suspend was when a spouse would reach full retirement age and file for retirement but suspend the payments. Filing for retirement would make his spouse eligible for spousal benefits and she would file for retirement but take spousal benefits rather than her own. Since neither were collecting their primary benefits, those would continue to accrue value until both retirees hit age 70, at which point they would begin to collect their larger primary benefits.


Congress closed this loophole in 2015.


Social Security Changes for 2019

Social Security has announced changes for 2019 that include an increase to the maximum Social Security benefit payable to recipients who retire next year.  In 2018, new retirees could pocket as much as $3,698 per month, but in 2019, they'll be able to collect up to $3,770 per month. Social Security beneficiaries are getting a 2.8% cost-of-living adjustment (COLA) for 2019.  However, that's just one of several Social Security changes that were announced in October 2018 that are tied to rising prices.


Herewith the recently released details of these five 2019 Social Security changes.


  1. Beneficiaries are getting a raise


Social Security beneficiaries are receiving a 2.8% COLA starting with their January 2019 benefit payment. The average benefit paid to all retired workers will increase from $1,422 to $1,461 as a result.


  1. Social Security's maximum taxable earnings are rising


Each year, Social Security tax is assessed at a rate of 6.2% for employers and employees, but only on earnings up to a certain threshold. This is known as the Social Security maximum taxable earnings.


For 2019, the maximum taxable earnings will increase by $4,500 -- from $128,400 to $132,900. In other words, if you earn $150,000 in Social Security-covered employment in 2019, $132,900 of those earnings will be subject to Social Security tax, while the other $17,100 will not be.


This increases the maximum Social Security tax an employee could pay from $7,960.80 in 2018 to $8,239.80 in 2019.


  1. One Social Security credit will require more earnings


In order to qualify for Social Security benefits, you'll need to earn 40 Social Security "quarters of coverage," which are also known as Social Security credits.  For 2019, one credit translates to $1,360 in earnings, an increase of $40 from 2018. This may not sound like a lot of money, but it is important to note that you can only earn four credits per year.


  1. The earnings test limits are increasing


If you receive Social Security and you haven't reached full retirement age, you can now earn more money from a job without affecting your Social Security benefits. For 2019, the Social Security earnings test limits are increasing as follows, according to SSA: If you reach full retirement age after 2019, your 2018 earnings test limit is $17,040/year. ($1,420 per month), and your 2019 earnings test limit will be $17,640/year ($1,470 per month). If you reach full retirement age during 2019, your 2018 earnings test limit is $45,360/year. ($3,780 per month), and your 2019 earnings test limit will be $46,920/year. ($3,910 per month*).


If you reach full retirement age after 2019, $1 of your benefits will be withheld for every $2 in excess earnings. If you attain full retirement age during 2019, $1 of your benefits will be withheld for every $3 in excess earnings, and only earnings in the months before your birth month will be considered. As always, if you've already reached full retirement age, the earnings test doesn't apply to you at all.


* https://www.ssa.gov/news/press/factsheets/colafacts2019.pdf

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v. The maximum Social Security benefit will be $73 higher


Finally, because Social Security benefits are limited by the maximum taxable earnings from each year, the maximum possible Social Security benefit is increasing for 2019, as well.


For 2019, the most a person can claim from Social Security at full retirement age is $2,861 per month. Of course, this could become even higher if workers entitled to the maximum decide to wait longer to claim. If the workers claim in 2019, a beneficiary's full retirement age is still 66 years old, so if they were to wait until they turn 70 in 2023, their benefit would start at $3,770 plus any additional COLAs that are given between now and then.


Reference: https://www.usatoday.com/story/sponsor-story/motley-fool/2018/11/27/its-official-these-5-social-security-changes-coming-2019/2121041002/


Unfortunately, most Americans are behind on their retirement savings, however, by working with your financial advisor, you can plan on how to maximize your retirement income from all sources, not just your Social Security check.  By learning how to maximize your Social Security benefits, I believe you could retire confidently with the peace of mind we all want.

If you are looking to figure out how to maximize your Social Security benefits, a great place to start is their website.  They have loads of resources and you can even log in to see what your projected Social Security income will be using their Retirement Estimator.  I have found this information to be very helpful when used in combination with a more comprehensive plan, whether or not you believe Social Security will even be there for you! ?

Thank you for reading!


Derek Notman

This is for informational purposes only.  New York Life Insurance Company and its affiliates and representatives do not provide legal, tax, or accounting advice.  Clients should consult their own legal and tax advisors.