Why the $4,194 Max Social Security Benefit Is a Fantasy

Why The $4,194 Max Social Security Benefit Is A Fantasy

You’ll often hear that it’s really difficult to retire on Social Security alone. But that assumes your monthly benefit is in line with the average payday seniors receive today. If you’re looking at a monthly benefit of $4,194, that’s a different story.

That number isn’t just a random one. Rather, it’s the highest monthly benefit Social Security will pay this year. But while it may seem like an attractive benefit to lock in, the reality is that most seniors won’t qualify for it.

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A tough set of thresholds to meet

To qualify for a $4,194 monthly Social Security benefit, you need to:

  • Earn a very high salary.
  • Maintain that high salary for 35 years.
  • Delay your Social Security filing until age 70.

Of all these, the latter may be the easiest box to check off. As long as you’re able to continue working, you may be able to delay your Social Security claim until age 70, thereby boosting your monthly benefit substantially. That’s because your benefits increase 8% for each year you delay them past full retirement age.

But your wages are something you have less control over. And unless you earn a high-enough salary over 35 years to meet or exceed the wage cap for each of those years, you won’t snag the highest possible Social Security payday.

For context, the wage cap — the amount of earnings that are subject to Social Security taxes and count toward calculating benefits — changes annually, and it tends to rise every year to account for inflation and wage growth. In 2022, the wage cap sits at $147,000. In the past, it’s been lower. But you’ll need to have earned a lot of money in the course of your career to claim a monthly benefit worth $4,194.

How to make up for a lower benefit

Most seniors don’t collect $4,194 a month from Social Security — not even close. But that’s OK, because the reality is that you don’t need a $4,194 monthly benefit to retire comfortably. All you need to do is save well so that you have income on hand to supplement the benefit Social Security gives you.

Let’s imagine your goal is to secure a monthly income of around $4,000, and you’re only in line for a $2,000 monthly Social Security benefit based on your lifetime earnings and anticipated filing age. You can make up that gap with savings.

Say you manage to amass a $600,000 IRA or 401(k) balance. If you then withdraw from your savings at a rate of 4% per year, which is what financial experts have long recommended, that gives you an extra $24,000 a year, or $2,000 a month. Add in your $2,000 monthly Social Security benefit, and you’re set with the $4,000 a month you were hoping for.

While it’s OK to take steps to get more money out of Social Security, don’t bank on snagging the maximum monthly benefit. For most people, that’s just not doable, but that doesn’t mean you don’t have other options for setting yourself up with a generous retirement income.

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