One of the biggest factors that determines your Social Security retirement benefit is how much you earn during your career. A long, high-paying career puts you one step closer to earning a higher monthly paycheck when you claim benefits.
But retirees shouldn't discount the impact of ageism on their decision. If you decide to start Social Security it can have a big impact on the size of your check as well.
That difference widens compared to the larger potential Social Security benefits at ages 62 and 70. Some retirees decide to split the difference and claim benefits at their full retirement age, which will be between ages 66 and 67 for students.
Looking at the difference between the maximum monthly check for the above years can help retirees decide when to start Social Security.
Image source: Getty Images.
As mentioned, a long, high-paying job is necessary for anyone interested in earning a high Social Security benefit.
When the Social Security Administration will calculate your benefit, it looks at your entire benefit history. It adjusts all your earnings from before you turned 60 for inflation, so it compares to your earnings from the year you turned 60. Any income after age 60 does not get adjusted. It then selects the highest earning 35 years and calculates your average salary for your career.
That number is then entered into a formula for Social Security benefits to determine your primary insurance amount, or PIA. Your PIA is what you should get when you claim benefits at full retirement age. If you apply before you reach full retirement age, you get less than your PIA. In other words, the longer you wait to apply, the bigger your benefit will be (with a cap if you're 70).
Collecting the maximum Social Security benefit doesn't require you to earn millions of dollars each year as there is an annual limit on the amount of each paycheck's federal taxes for the program. Any income above that amount won't incur Social Security taxes, but it also won't count toward your benefits history.
The Social Security Administration adjusts the amount each year for inflation. In 2024, anyone earning $168,600 or more paid the exact same amount in Social Security taxes. The limit for 2025 is $176,100.
Earnings above the taxable limit for 35 years will put you in a better position to receive a larger Social Security check in retirement. For reference, here is the maximum taxable income for the past 50 years.
A year
Salaries
A year
Salaries
1976
$15,300
2001
$80,400
1977
$16,500
2002
$84,900
1978
$17,700
2003
$87,000
1979
$22,900
2004
$87,900
1980
$25,900
2005
$90,000
1981
$29,700
2006
$94,200
1982
$32,400
2007
$97,500
1983
$35,700
2008
$102,000
1984
$37,800
2009
$106,800
1985
$39,600
2010
$106,800
1986
$42,000
2011
$106,800
1987
$43,800
2012
$110,100
1988
$45,000
2013
$113,700
1989
$48,000
2014
$117,000
1990
$51,300
2015
$118,500
1991
$53,400
2016
$118,500
1992
$55,500
2017
$127,200
1993
$57,600
2018
$128,400
1994
$60,600
2019
$132,900
1995
$61,200
2020
$137,700
1996
$62,700
2021
$142,800
1997
$65,400
2022
$147,000
1998
$68,400
2023
$160,200
1999
$72,600
2024
$168,600
2000
$76,200
2025
$176,100
Data source: Social Security Administration.
Determining the best age to claim Social Security will come down to your personal circumstances, needs, and your retirement needs.
You are eligible to claim benefits on your income record from the age of 62. But as mentioned before, seeking as soon as possible comes with a small check return. You will likely rely heavily on your retirement savings for income. On the other hand, filing at 62 can allow you to retire early.
If you wait until 70, you'll eventually get a bigger paycheck, which may be enough to provide a stable retirement income without the need to rely on investment returns to fund your golden years. However, you will have to make up the difference by drawing down your retirement accounts at age 60 or continuing to work.
Splitting the difference by waiting until 66 or 67 can allow you to avoid waiting longer to retire while still getting more benefits. With all that in mind, here's what the top earnings look like for each age group in 2024 and 2025.
Retirement Age
62
66
67
70
Big monthly profit in 2024
$2,710
$3,652
$3,911
$4,873
Big monthly profit in 2025
$2,831
$3,795
$4,043
$5,108
Data source: Social Security Administration.
Despite earning the same wages throughout their careers, a person turning 70 in 2025 could earn 80% more per month than their 62-year-old counterpart. In absolute terms, the maximum potential benefit for a 70-year-old is over $27,000 more per year. That's enough to cover most living expenses or add a good amount of vacation time each year.
It is worth pointing out that some of the difference in monthly benefits is due to the ongoing change in the full retirement age for those born between 1955 and 1960. However, all things being equal, a person turning 62 this year can expect to receive a 77% greater return if they wait until 70 compared to claiming this year.
If you've earned enough to put yourself in line for the maximum possible Social Security benefit, or close to it, you're probably in pretty good shape financially regardless of what you get from the program. So, if you have enough retirement savings in your investment accounts, you'll probably be better off withdrawing from your accounts and delaying benefits until you're 70.
There are several factors to consider for high earners. Survivor benefits will likely play a role in the decision. The benefit allows your spouse to collect whatever you would have received from Social Security if you passed away before them. Therefore, you should consider your joint life expectancy in the decision to apply instead of just your own. That makes it more likely that waiting until age 70 will increase the amount of Social Security payments on your earnings record.
Second, you must consider the impact of Social Security on your taxes. It doesn't take much extra retirement income before the government starts taking taxes out of your monthly Social Security check. That's because the income limits for Social Security's income tax haven't changed since 1993. If you plan ahead of claiming Social Security, you can set up your retirement accounts to reduce your overall tax liability with strategies like Roth conversions and timed capital gains. lower tax rate. Those strategies don't work when you start getting Social Security.
Waiting until 70 is statistically more likely to result in a higher level of wealth for retirees. That's because life expectancy continues to improve, and you're likely to end up collecting more benefits over time by living long enough to keep cashing your monthly paychecks. So, high earners should aim to wait as long as possible before claiming their benefits.
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Here's the Maximum Possible Social Security Benefit at 62, 66, 67, and 70 was originally published by The Motley Fool.
