In 2022, some seniors receive a monthly Social Security benefit of $4,194, the maximum available. But not a lot. According to the Social Security Administration, the average monthly benefit for retirees in 2022 is $1,623.
The maximum Social Security benefit may seem like a lot, but even if you receive that much, chances are it won’t be enough to make ends meet.
$4,194 a month isn’t as generous as it sounds
The harsh reality of Social Security benefits is that they are only meant to replace about 40% of pre-retirement income. And for some people, they replace a much smaller percentage.
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Your benefits are calculated on the basis of the average earnings during the 35 years when your earnings were highest (after adjusting for inflation). To qualify for a Social Security check of $4,194, you would have had to earn the maximum income subject to Social Security tax for a period of at least 35 years. And then, it would have taken 70 years to maximize the deferred retirement credits.
Each year, the Social Security Administration (SSA) sets the maximum taxable income, called the base salary limit. In 2022, it’s $147,000. The SSA regularly adjusts the inflation limit, but as you can see it is very high, relatively speaking. If you have earned less than the base salary limit in any of the 35 years that count in your formula, you are not eligible for a $4,194 benefit. If you earned more than the base salary limit in any given year, those salaries will not offset the years you did not reach the limit.
If you used to earn the inflation-adjusted equivalent of $147,000 or more for 35 years, suddenly dropping to $50,328 per year (equivalent to $4,194 per month) would be a huge reduction in salary. You probably wouldn’t want to reduce your standard of living that much, so the maximum benefit wouldn’t be enough, even though it’s well above what most seniors receive (average monthly benefit is $1,669) .
Everyone needs savings to supplement Social Security
Understanding how much you would need to earn to maximize your Social Security checks is helpful for several reasons.
First, it highlights the fact that most people will get far less than the maximum benefit. Unless you earn the inflation-adjusted equivalent of $147,000 for 35 years and apply for Social Security at age 70 to maximize your deferred retirement credits, this maximum benefit is a fantasy for you. .
And the bigger the gap between your income and $147,000, the smaller your retirement check will be compared to the maximum. Most people can expect to receive closer to average benefits, which is clearly not enough to live on without extra money.
Second, it shows that even when a Social Security benefit seems large, any retiree who tries to rely on it alone will take a huge pay cut. You can’t live on 40% or less of what you once had. So be sure to start saving and investing throughout your career — using tax-efficient accounts like a 401(k) and an IRA — so you don’t have to try.
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