Social Security benefits are a vital source of income for most retirees, but they don't provide enough for most people to live on. They're intended to replace only around 40% of pre-retirement income, and there's a maximum limit on what you can receive.
The annual maximum amount changes from year to year and depends on the age at which you claim benefits. While most people won't receive the maximum, it's helpful to know what it is so you can see just how much income Social Security could potentially provide.
What is the maximum Social Security income you could receive in 2020?
Social Security calculates different maximum benefits depending on the age when you start receiving them.
You can start as early as 62, but this would reduce your standard benefit. You could wait until 70 to earn delayed retirement credits and increase your standard benefit. Or you could receive your standard benefit if you claim at full retirement age, which is 66 for those born in 1954 but gradually increases to 67 for those born in 1955 or later.
In 2020, the maximum monthly income from Social Security is:
- $2,265 if you claim benefits at 62.
- $3,011 if you claim benefits at full retirement age.
- $3,790 if you claim at 70.
If you're retiring in 2020, the most annual income you could get from Social Security is $45,480 if you're 70 and qualify for the largest possible benefit. But if you retired in past years, it's possible to get a larger amount than this year's maximum.
If you started your benefits at 70 in 2018 and received the maximum benefit for that year, annual cost-of-living increases would've pushed your monthly benefit in 2020 to $3,862. And if you filed in 2019 at 70 and qualified for the maximum, your monthly payout this year would be up to $3,830 thanks to a 1.6% cost-of-living adjustment.
Why is there a maximum Social Security benefit?
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Your Social Security benefit is based on a formula that takes into account earnings over your career. You receive a percentage of the average wages you earned over your 35 highest-earning years, adjusted for inflation.
But you pay tax only up to a certain income each year, and you're only given credit for that amount when your average wage is determined. In 2020, for example, the Social Security wage base limit is $137,700. You pay into Social Security up to that amount. If you earn $200,000, you won't be taxed on part of your money, and not all of your earnings count when Social Security benefits are calculated.
Social Security caps the earnings that are subject to taxation (and which are counted in benefit determinations) because otherwise people with very high incomes would have monthly benefits in the tens of thousands.
Will you receive the maximum Social Security income?
Very few people receive the maximum monthly benefit from Social Security. To get it, you would've had to earn at least as much as the wage base limit every year for 35 years. Very few people do that.
The maximum benefit is actually well above the average benefit, which is $1,503 in 2020 for all retired workers. Unfortunately, that means the average person receives only around $18,036 in annual income from the Social Security Administration -- which is likely not enough to live on without significant savings to supplement it.
You should understand how to maximize your own benefits
While you may not receive the maximum benefit, there are ways you can get the most money possible from Social Security. Working until 70 and making sure you put in at least 35 years of work can help you to get the largest amount possible, as can coordinating with your spouse for when you'll claim so you can make smart moves regarding spousal and survivor benefits.
Since Social Security is an ideal source of retirement income because monthly checks adjust upward for inflation and and are guaranteed for life, it's a good idea to learn about factors that affect your benefit amount before you claim your first check.
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