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Why the maximum Social Security benefit of $4,194 is a fantasy

BBeginning 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 total of $4,194 is the highest monthly payment to which Social Security benefit recipients can be entitled. It’s also a payment that has so many difficult qualifying thresholds that you’re probably more likely to fund your retirement with lottery winnings than to be one of the beneficiaries.

But why is a Social Security retirement benefit of $4,194 so elusive for the vast majority of Americans? There are several reasons, but two main ones provide the bulk of the explanation.

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1. Earning a living wage over at least 35 years is not an easy task

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

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

The SSA sets a maximum salary to be used in determining the benefit. Any wages earned above this ceiling are not taxed to fund Social Security, but they also do not contribute to receiving a higher benefit. This cap limits the size of benefit checks because Social Security is only intended to provide a basic level of support for retirees. Anything beyond this basic level is the responsibility of the retiree.

The annual ceiling is called the “base salary limit”. In 2022, it was set at $147,000. The amount changes each year, but the ceiling is always the equivalent of this amount after adjusting for wage growth. To obtain the maximum monthly benefit, a worker should have annual earnings that meet or exceed the basic salary limit for 35 of their working years. Only people who have earned a huge salary for almost their entire career would be eligible.

2. Only those who delay claiming benefits until age 70 are eligible

Suppose you were very successful at a young age and managed to earn an income at least equal to base salary for 35 years or more. You still don’t qualify for those big Social Security checks — at least not yet. You also have to wait until age 70 to apply for Social Security.

This is because the highest possible Social Security check is only available to people who both max out their qualifying wages. and accumulating the maximum number of deferred retirement bonuses.

To determine a person’s “standard” benefit, they must apply for Social Security at Full Retirement Age (FRA). The FRA varies depending on the year you were born and the designated age varies between 66 and four months and 67. For each month of age after the FRA that you wait to start receiving, you earn deferred retirement credits which increase your standard benefit by two-thirds of 1% until you reach age 70 and reach the maximum age to start collecting.

If you miss any of these deferred retirement credits, you miss the maximum monthly benefit. The average Social Security recipient has not been willing to delay benefits that long. In 2019, only 15% of potential Social Security recipients were over 66 when their benefits were granted. Another 25% were 66 years old. Only 3.7% waited 70 years to start collecting.

What will be your profit?

So those are two big reasons why you’re very unlikely to see anywhere near $4,194 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 retirement savings goals based on the benefits that are likely to accrue to you.

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