The odds of someone meeting "all of the above" to qualify for this maximum amount are remarkably low. However, it still makes sense to understand what it would take to achieve this goal. This will allow you to make the most of the path you're on and make the best decisions to maximize the value to you of the benefits you've earned throughout your professional career.
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Your 35 highest years of indexed and hedged earnings
When you apply for Social Security, the program analyzes how much you earned each year you worked in covered jobs and what the national average wage was during that year. This makes it easier to manage money you've earned recently than money you earned when overall wages were lower before inflation took its toll.
Finally, Social Security uses the highest 35 years of your covered earnings indexed from employment. If you have fewer than 35 years of work, your record will have zeros. Conversely, if you have more than 35 years of covered work, Social Security will take your 35 years plus those years—up to the annual limits, after indexing—to determine your benefit.
What this means for you is that if you've maxed out your covered earnings throughout your career, it doesn't really matter whether you work 35 or 40 years before quitting. On the other hand, if you've worked to a high income over time, working an extra year or two at your higher salary can make a decent difference in your benefit level.
Your age when you harvest makes a big difference
Besides your earnings record, the other important thing Social Security considers when determining your benefit is how old you are when you start collecting. You can start at age 62, and the longer you wait, until age 70, the more you'll collect each month. It's a trade-off, where you can choose between receiving smaller checks for more months or larger checks for fewer months.
The difference can be quite substantial. Let's say you were born in 1960 or later, and your full retirement benefit would be $2,000 per month. If you retire at 62, that benefit would be reduced by $600, to $1,400 per month. On the other hand, if you wait until age 70, that benefit would increase by $480, to $2,480 per month. That's a difference of more than $1,000 per month—a significant change in anyone's budget.
However, the challenge is that you need to reach 70 years before harvesting to obtain this exorbitant amount. You'll have to find a way to cover the costs until then.
Whether this comes from continuing to work, withdrawing your savings, or a combination of both is largely up to you. However, it's important to recognize that people's labor force participation tends to decline as they age. Part of this is due to planned retirements, but part is because people can't continue working for one reason or another. So, if you plan to work until age 70, it doesn't hurt to save some money in case those plans change.
Start improving your prospects now
As long as you're still working and under 70, you can likely take steps to increase your Social Security benefit. While the maximum benefit of $ 4,555 is more fantasy than reality, every little bit helps.
Given how Social Security works, however, it can take years to make a significant difference in your benefit amount. So, if you want to get close to that boost, start creating your plan now and give yourself the best chance of taking home a bigger check each month in retirement.
Chuck Saletta holds no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.
