Why the $4,194 Maximum Social Security Benefit Is a Fantasy | Smart Change: Personal Finance

(Christy Bieber)

Beginning in 2022, the Social Security Administration (SSA) began sending a small number of monthly checks for $4,194 to a select group of recipients. That $4,194 total is the largest monthly payment that people receiving Social Security benefits can qualify for. It’s also a payment that includes so many difficult qualification thresholds that you probably have a better chance of funding your retirement with lottery winnings than being one of the recipients.

But why is a $4,194 retirement benefit so difficult for the vast majority of Americans to achieve? There are several reasons, but two main reasons explain the most.

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1. Earning enough salary over at least 35 years is no easy task

Social Security’s $4,194 maximum monthly benefit is only available to people who have earned very high wages for a long time.

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Each year, the SSA collects data on how much you earn. A formula calculates your wages and adjusts for inflation, and the SSA then determines your average wage over 35 years of your working life when your earnings were highest. Your monthly check is equal to a certain percentage of that average earnings.

The SSA sets a maximum wage for determining the benefit. Wage earned above this maximum will not be taxed to fund Social Security, but neither will it contribute to receiving a higher benefit. This limit limits the scope of benefit checks, as Social Security is only intended to provide a basic level of support for retirees. Anything beyond that basic level is the retiree’s responsibility.

The annual limit is called the ‘wage base limit’. In 2022, it was set at $147,000. The amount changes every year, but the ceiling is always the equivalent of that amount after adjusting for wage growth. To receive the maximum monthly benefit, an employee would have to have an annual income that reached or exceeded the wage base limit in 35 of his working years. Only those people who earned huge paychecks for almost their entire career were eligible.

2. Only those who postpone applying for benefits until the age of 70 are eligible

Suppose you are very successful at a young age and you manage to earn an income of at least the wage limit for 35 years or more. you still are not eligible to get those big Social Security checks — at least not yet. You must also wait until age 70 to claim Social Security.

That’s because the highest possible Social Security check is only available to people who both maximize their qualifying wages and who earn the maximum number of deferred retirement loans.

To determine a person’s “standard” benefit, they must claim Social Security at full retirement age (FRA). FRA varies based on the year you were born and the stated age ranges between 66 and four months and 67 years. For every month you wait after FRA to start collecting, you will earn deferred retirement credits that increase your standard benefit by two-thirds of 1% until you reach age 70 and the maximum age to start collecting.

Miss one of these deferred retirement loans and you will miss out on the maximum monthly benefit. The average Social Security recipient has not been willing to delay benefits for that long. In 2019, only 15% of potential Social Security recipients were over the age of 66 when they started receiving benefits. Another 25% were 66. Only 3.7% waited until age 70 to start collecting.

What will be your advantage?

So those are two main reasons why you’re very unlikely to see anywhere near $4194 in your monthly Social Security check. You can find out what amount is realistic for you by logging into your mySocialSecurity account and then setting goals for your retirement savings based on the benefits you are likely to encounter.

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