There are several paths to getting an above-average payout from the program.
Social Security helps tens of millions make ends meet in retirement. But the typical benefit doesn't come close to covering the needs of most retirees. With the average monthly retirement payment coming in at just $1,620, Social Security is a reasonable supplement but not something you can expect to live on by itself.
However, there are ways you can plan your career to generate more Social Security income. By picking the right combination of variables and with some hard work, you might be able to boost your expected monthly Social Security payment to $3,000 or more. That could get you a lot closer to being able to rely on the program for a sizable part of your retirement spending needs. Here's how to go about it.
The starting point
There's a special number that determines your Social Security benefit. It's called the primary insurance amount, and it's largely a function of your earnings during your career. Social Security takes your 35 top-earning years and calculates an inflation-adjusted average of your monthly earnings. It then plugs that number into a formula based on your birth year.
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For those turning 62 in 2022, generating a primary insurance amount of $3,000 would take average earnings of $9,046 per month, or just over $108,500 per year. Note that earnings in past years could be lower than that, as they'd get indexed upward to account for inflation between then and now.
The primary insurance amount determines how much you receive if you claim Social Security at your full retirement age, which is 67 for those born in 1960 or later. However, if you can't earn enough over your career to get $3,000 a month at 67, you might be able to get it by waiting a little longer before claiming your benefits.
How patience can pay off
Social Security pays 8% per year in delayed retirement credits if you put off claiming Social Security until after your full retirement age. Those credits max out at age 70, though. So you'd get a 24% boost by waiting from age 67 to age 70. In our example, that would mean you could have a primary insurance amount of just $2,419.
The average salary it would take to generate that lower $2,419 amount is considerably lower than the $108,500 per year figure mentioned above. Earnings of just $5,703 per month, or less than $68,500 per year, would suffice to get you to the point at which claiming Social Security at 70 would pay you that $3,000 per month amount.
So why are typical payments so low?
With it taking as little as $68,500 to get a $3,000 monthly retirement benefit from Social Security at age 70, you might wonder why the average payout from Social Security is so much lower. The answer is that most people don't wait even until full retirement age to claim their benefits, much less waiting even longer until age 70.
Retirees can claim benefits as early as age 62, but doing so comes at a cost. Instead of getting delayed retirement credits, early claimers have to accept a reduction of up to 30% in their monthly checks. That means someone who'd otherwise be eligible to receive $3,000 per month at full retirement age could instead receive only $2,100. Those who'd get $3,000 at age 70 could see their monthly check come in below $1,700.
Be smart about Social Security
There are some things you can do to put yourself in the best possible position to maximize your Social Security. Working more, finding higher-paying jobs, and preparing to wait a little longer before retiring can all boost your eventual payout. That flexibility could make Social Security a lot more helpful in giving you the retirement you've always dreamed of.
