• Discounts and special offers
  • Subscriber-only articles and interviews
  • Breaking news and trending topics

Already a subscriber?

By signing up, you accept Moneywise's Terms of Use, Subscription Agreement, and Privacy Policy.

Not interested ?

How is the maximum Social Security benefit calculated?

Social Security's formula bases benefit amounts primarily on two factors: average earnings — up to a certain amount — over a worker's 35 highest-income years and the age they claim benefits.

Each year, workers pay taxes on income up to a specific amount, called the wage base limit. In 2024, the limit is $168,600 annually, however, limits increase over time based on wage growth. Earnings up to the limit become part of a worker's earnings record.

That earnings record is used to calculate their average indexed monthly earnings (AIME) which is their average monthly wage in their 35 highest-income years after adjusting earnings to account for wage growth. Calculating a worker's AIME is key to determining their primary insurance amount, which sets their monthly retirement benefit at full retirement age.

A worker's full retirement age is based on their date of birth. For those born between 1943 and 1954, the age is 66 and increases gradually for those born in subsequent years until 1960, after which the full retirement age is 67.

So, the maximum benefit ends up being based on how high the wage base limit was over a worker's 35 highest-income years. And it's available only to those who earned the maximum countable earnings.

But that's not all. The age at which a worker begins claiming benefits is also a major factor.

Find a financial adviser in minutes

Are you confident in your retirement savings? Get advice on your investment portfolio from a certified professional through WiserAdvisor. It only takes 5 minutes to connect with an adviser who puts you first.

Get Started

Claiming age impacts benefits too

Retirees can file for Social Security as early as age 62, but will incur a penalty of up to 30% of the amount they would receive at full retirement age. It's also possible to boost one's benefit even further if they delay claiming benefits past full retirement age until they're 70. And that is how to achieve the maximum benefit of $4,873 in 2024.

Experts generally advise retirees to wait until they're 70 to claim retirement benefits in order to get the most out of Social Security, if they can afford to do so. Until then, however, they would have to rely primarily on their savings, including what's in their 401(k)s and IRAs, to get by.

Benefits also increase over time as a result of cost-of-living adjustments (COLAs). These are periodic raises retirees get to account for the impact of inflation. Someone who received the maximum monthly benefit of $4,555 in 2023, for example, would receive a monthly benefit of $4,700 in 2024 since retirees received a 3.2% raise this year.

Retirees need COLAs to avoid losing buying power as prices go up. Fortunately, they're built into the program and happen automatically.

Sponsored

This 2 Minute Move Could Knock $500/Year off Your Car Insurance in 2024

Saving money on car insurance with BestMoney is a simple way to reduce your expenses. You’ll often get the same, or even better, insurance for less than what you’re paying right now.

There’s no reason not to at least try this free service. Check out BestMoney today, and take a turn in the right direction.

Christy Bieber Freelance Writer

Christy Bieber a freelance contributor to Moneywise, who has been writing professionally since 2008. She writes about everything related to money management and has been published by NY Post, Fox Business, USA Today, Forbes Advisor, Credible, Credit Karma, and more. She has a JD from UCLA School of Law and a BA in English Media and Communications from the University of Rochester.

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.