Earning plenty of money in your working years isn’t the only contributing factor.
Social Security was never meant to be the entirety of anyone’s retirement income. Indeed, for many people, it doesn’t even make up the biggest piece of their income in retirement.
The fact is, however, a handful of people are doing pretty well with their Social Security benefits, collecting this year’s maximum possible monthly payment $5,108.
How can you do as well? There’s a small handful of factors that determine your eventual payment, but chief among them is the amount of money you make during your working years.
The magic number — and others
Cutting straight to the chase, the fewer than 3,000 people (of the nation’s 51 million Social Security beneficiaries) now enjoying monthly payments of $5,108 earned an inflation-adjusted equivalent of a 2024 salary of $168,600. That’s the maximum annual earnings taxed by Social Security, since that’s the maximum amount of income for which you’ll receive credit when the Social Security Administration determines your eventual benefits payment. Earning less will result in a smaller retirement benefit, but earning more won’t help.
This figure is ramped up to $176,100 for this year, by the way. To this end, the table shows every year’s maximum taxable income — for Social Security purposes anyway — going all the way back to 1984.
| Year | Social Security’s Taxable Earned Income Ceiling | Year | Social Security’s Taxable Earned Income Ceiling |
|---|---|---|---|
| 1984 | $37,800 | 2005 | $90,000 |
| 1985 | $39,600 | 2006 | $94,200 |
| 1986 | $42,000 | 2007 | $97,500 |
| 1987 | $43,800 | 2008 | $102,000 |
| 1988 | $45,000 | 2009 | $106,800 |
| 1989 | $48,000 | 2010 | $106,800 |
| 1990 | $51,300 | 2011 | $106,800 |
| 1991 | $53,400 | 2012 | $110,100 |
| 1992 | $55,500 | 2013 | $113,700 |
| 1993 | $57,600 | 2014 | $117,000 |
| 1994 | $60,600 | 2015 | $118,500 |
| 1995 | $61,200 | 2016 | $118,500 |
| 1996 | $62,700 | 2017 | $127,200 |
| 1997 | $65,400 | 2018 | $128,400 |
| 1998 | $68,400 | 2019 | $132,900 |
| 1999 | $72,600 | 2020 | $137,700 |
| 2000 | $76,200 | 2021 | $142,800 |
| 2001 | $80,400 | 2022 | $147,000 |
| 2002 | $84,900 | 2023 | $160,200 |
| 2003 | $87,000 | 2024 | $168,600 |
| 2004 | $87,900 | 2025 | $176,100 |
Data source: U.S. Social Security Administration
This number, of course, is only one piece of the puzzle. You must also reach or exceed the salary thresholds listed in the table for a minimum number of years — 35, to be specific.
That doesn’t mean you must do so for 35 consecutive years, to be clear, nor does it mean you necessarily need to begin your retirement benefits immediately after you complete your 35th full year of these earnings figures. You can wait to claim benefits until well after your final year of work.
In fact, even those few people now seeing monthly payments of $5,108 didn’t get there simply by earning a great income for a minimum of 35 years. They also waited until they turned 70 to initiate their retirement benefits. Doing so any sooner would have reduced the size of their Social Security payments.
That being said, waiting any longer than that to claim Social Security would be of no additional benefit. There’s good reason to initiate this retirement income as soon thereafter as you can, in fact. Although the Social Security Administration will retroactively pay you any benefits you’re due from the point in time you turned 70, it will only do so for a maximum of six months. Waiting seven months or more to claim means you’re leaving money on the table.
Just a small part of a bigger picture
You already know there’s just no way you’ll reach this enviable level of Social Security retirement income? That’s OK. As noted, the vast majority of beneficiaries don’t. Most of them don’t even get close; the average monthly Social Security check right now is a much smaller $1,976. (Again, this government-managed program was never intended to provide all of anyone’s total retirement income.)
Just don’t linger on the matter for too long. You’ll still fare far better by investing as much money on your own for 35 years as you’re paying in the form of FICA taxes for the same time frame.
See, the typical rate of return on your Social Security contributions is only a little better than any year’s inflation rate. The S&P 500‘s average annual gain, however, is nearer 10%. Putting just $6,000 per year into a tax-deferring IRA and investing that money in an index fund mirroring the S&P 500 would leave you with over $1 million after a 35-year stretch. That sort of cash stash is capable of generating considerably more monthly income than Social Security typically does.
The biggest hurdle is just getting started, and then remaining committed to any sacrifices needed to make sure you’ve got this money available, year in and year out. It’s certainly worth the effort, though.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
