Aspiring to earn enough to max out Social Security might not turn out to be all it's cracked up to be.
The maximum possible Social Security retirement benefit in 2024 is $4,873 per month. That number will continue to climb higher every year due to the annual cost-of-living adjustment . Receiving such a big benefit, though, requires a long career in a high-earning position and a lot of patience.
There are a lot of important and often unfortunate truths to consider about that maximum benefit. Here's what you need to know.
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You must earn a high income for a long time to get it
The way the Social Security Administration (SSA) calculates your retirement benefit is based on your 35 highest-earning years, adjusted for increases in average wages. That means you have to earn above the maximum taxable earnings for 35 years, in order to even come close to the maximum possible benefit in retirement.
Some highly compensated professionals like doctors don't start earning those high salaries until relatively late in life. That means they might not earn above the maximum taxable earnings for long enough to qualify.
For reference, the maximum taxable earnings in 2023 was $160,200. If you're collecting $4,873 in benefits every month in 2024, that's $58,476 per year, or just 36.5% of what you might've been earning last year. That's a relatively small percentage of your income being replaced by Social Security.
The reason the maximum benefit replaces such a small percentage of your income is because the program is designed to be progressive. Lower-earning individuals receive a larger portion of their income as a benefit in retirement. But if you were an ultra-high earner, you'll only receive a small portion of your income as Social Security.
You must be born in a specific year and wait until age 70
While the maximum possible monthly benefit in 2024 is $4,873, that might not be the maximum possible benefit you could receive personally.
In order to qualify for the $4,873 benefit, you must meet the earnings qualification, and turn 70 this year. If you were born earlier, your maximum benefit is much different, even if you maxed out your earnings.
There are a couple of reasons for the discrepancy. First, the way the SSA calculates your average income only adjusts wages for inflation up until age 60. So, someone older who continues working won't see increases in their average adjusted income.
Second, the way the SSA calculates your primary insurance amount also gets those inflation adjustments every year, but each individual's benefit formula gets set in stone when they become eligible for Social Security. So, someone older typically receives a smaller amount of their income as a Social Security benefit, all else being equal.
Waiting until 70 is still going to maximize your personal monthly benefit. Those born in 1954 are the last to receive a 32% increase in their benefit relative to their primary insurance amount , as they reached full retirement age at 66. The full retirement age increases by 2 months for each year you were born after 1954, before maxing out at age 67 for those born in 1960 or later. Those younger retirees will only receive a 24% boost to their primary insurance amount for waiting until 70 to claim benefits.
It's almost impossible to avoid taxes on your benefits
If you're receiving the maximum possible Social Security benefit, you'll very likely have to pay some of it back in taxes to the federal government.
The way taxes on Social Security work is based on a metric called "combined income." Combined income is the sum of half your Social Security income, your adjusted gross income , and any untaxed interest income. The amount is then taxed based on the following thresholds.
| Amount Taxed | Single | Married Filing Jointly |
|---|
| 0% | Less than $25,000 | Less than $32,000 |
| Up to 50% | $25,000 to $34,000 | $32,000 to $44,000 |
| Up to 85% | More than $34,000 | More than $44,000 |
Data source: Social Security Administration. Table by author.
As you can see, the thresholds are quite low. That's because they haven't been adjusted since they were first created in the 80s and 90s. If you receive the maximum $4,873 per month, your combined income is already $29,238, enough to put you over the threshold for a single filer.
Moreover, it's very unlikely you won't have other sources of income in retirement. Traditional retirement account withdrawals count as income, and so does interest from your savings account or a CD . Any capital gains from investments will count as well.
Your tax bill can climb quickly with each extra dollar of income due to the unique taxation of Social Security income. Don't discount the effect it could have on your budget in retirement.
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