The Reality of Receiving the Maximum $4,873 Social Security Benefit

Many strive to maximize their Social Security benefits, aiming for the highest possible payout. However, achieving the maximum benefit of $4,873 per month in 2024 requires a long, high-earning career and patience. For those planning to rely on Social Security immediately upon retirement, aiming for the maximum benefit may not be practical.

You Must Wait Until Age 70

While you can begin claiming Social Security at age 62, you'll need to wait until age 70 to receive the maximum monthly benefit. Each month you delay, your benefit increases based on your primary insurance amount (PIA), which is the benefit you'd receive at full retirement age (FRA). The FRA ranges from 66 to 67, depending on your birth year. For those born in 1960 or later, the FRA is 67.

If you claim benefits before reaching your FRA, your monthly payments will be reduced. Conversely, waiting beyond your FRA increases your benefits by 2/3 of a percentage point each month. By age 70, your benefit could be 32% higher than your PIA. However, as the FRA increases, the relative value of the maximum benefit decreases.

It Won’t Replace Most of Your Income

To receive the maximum benefit, you need to have a high income throughout your career. For example, in 2023, you needed to earn at least $160,200 to max out your Social Security contributions. A $4,873 monthly benefit replaces only 36.5% of that income.

Social Security is designed as a progressive program, meaning it replaces a higher percentage of income for lower earners and a lower percentage for higher earners. Thus, those who earned high incomes will find that Social Security replaces a smaller portion of their pre-retirement earnings. If you haven't saved adequately for retirement, you'll need substantial savings in accounts like 401(k)s, IRAs, or brokerage accounts to maintain your lifestyle.

Significant Tax Implications

Receiving a large Social Security check often leads to higher taxes. The government uses "combined income" to determine the taxable portion of your benefits. Combined income is half of your Social Security benefits plus your adjusted gross income and any untaxed interest income. If your combined income exceeds certain thresholds, a portion of your benefits becomes taxable:

With a $4,873 monthly benefit, your annual combined income would be $29,238 before adding any other income. Additional income from retirement account withdrawals or investment gains could increase the taxable portion of your Social Security benefits. This situation is sometimes referred to as the "Social Security tax torpedo," where each additional dollar of income also makes more of your Social Security benefits taxable.

While paying taxes on high income isn't the worst problem to have, it can significantly impact your retirement budget. Planning for taxes is crucial if you aim to receive the maximum Social Security benefit.

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