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

It may not be an earth-shattering amount of money, but it’s certainly enough to live comfortably on. Cashing $4,194 worth of Social Security checks every month translates into income of more than $50,000 per year, which is roughly what the average U.S. worker earns these days.

The odds of you actually collecting the maximum monthly Social Security payment of $4,194, however, are shockingly slim. You’ll do well to take home half of that amount, in fact.

But don’t get discouraged. There’s plenty you can do to beef up your retirement cash flow.

Image source: Getty Images.

The more likely amount is much lower

Some people are receiving those maximum payments, to be clear, but not many. Of the 47.2 million people currently collecting Social Security payments, just a little under 1 million of them are banking more than $4,100 per month. That’s right around 2% of the pool of beneficiaries.

So what sort of checks are most beneficiaries seeing? The average monthly payment for 2022 is actually a much more modest $1,657.

Yes, that average is weighed down by a good number of beneficiaries collecting much, much less… but not as many as you might think. A little over 25 million people — not quite half of the entire beneficiary pool — see less than $1,500 per month from the Social Security Administration, and nearly 11 million of them bring home less than $1,000 per month from Social Security payments. Only a little over 2.2 million of those people are collecting less than $500 per month.

At the other end of the spectrum, only 11 million people are seeing checks in excess of $2,000 per month, and most of those are just barely above the $2,000-per-month mark. While the average payment is $1,657, the single biggest cohort of recipients is taking home between $1,700 and $1,800 per month. The graphic below tells the tale.

Data source: U.S. Social Security Administration. Chart by author.

The disparity and dispersion, of course, reflect the different degrees of income all of these people earned during their working years. Folks collecting the maximum monthly benefit of $4,194 now earned 2022’s equivalent (give or take) to an annual salary of $147,000. 10 years ago, they were earning on the order of $110,000 per year. 20 years ago, the figure was closer to $85,000.

In all three cases, those incomes are well above the average yearly earnings at the time. Most people weren’t taking home that much then, and aren’t earning $147,000 per year now. The Social Security Administration says the average individual’s current annual earnings stand just above $55,000.

And, as it turns out, consistently earning that amount of money every year (adjusting for inflation) for 35 years will yield you a monthly check of just a little over $1,600 per month — right at the current average — assuming you retire at age 67. Retiring at the age of 62 with those same earnings means monthly Social Security checks closer to $1,000, but if you can wait until you’re 70 years old to start collecting, your payments ratchet up to a bit over $2,000, in today’s dollars.

It’s not terribly difficult to ballpark the size of the checks you’ll be getting once you tell the Social Security Administration to start sending checks. If you were an average earner (and most of us by definition are), you’ll get average-sized checks. Only the very highest wage-earners will actually max out their benefit, and even then, only if they wait until they’re 70 years old to start receiving payment.

Not the end of the world

Surprised? Maybe even a bit frustrated about how much Social Security you won’t be getting? Don’t sweat it.

The fact is, you can easily build your own nest egg while you’re working that generates income well beyond what Social Security provides. For instance, a $20,000 investment in an S&P 500 (SNPINDEX: ^GSPC) fund could be worth around $350,000 30 years later, if simply left alone that whole time. That cash-stash is capable of generating on the order of an extra $9,000 worth of annual dividend income at today’s prevailing dividend yields.

Or, if you can just sock away $3,000 worth of your annual earnings in the stock market every year and reinvest any growth achieved in the meantime, you’ll end a 35-year stretch with roughly $900,000. That’s enough to generate more than $22,000 worth of dividend income alone every year — without dipping into the principal — which of course is a nice supplement to however much Social Security you’re due.

The key in both cases, however, is time. You must get started early and stay committed to your regular, recurring investment plan if you want to fund a comfortable retirement, since the vast majority of us won’t even be coming close to the Social Security Administration’s maximum monthly payment to retirees.

The $18,984 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $18,984 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.