The average retiree falls $2,538 below the maximum Social Security benefits. Here why | Smart Change: Personal Finance

(Christy Pepper)

In 2022, the maximum monthly Social Security benefit is $4,194. This will save a generous $50,328 in retirement income for those who receive it.

However, most people will not come close to maximizing the benefits. In fact, the average monthly retirement check is just $1,657, which means the typical senior gets $2,538 per month less than the largest possible check. So, the big questions are, why do so many people fall short, and will you approach maximum benefit?

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Here’s why most seniors aren’t even close to maxing out their Social Security checks

average social Security The benefit is much smaller than the maximum benefit because retirement income is based on average wages over the course of your career.

See, Social Security benefits are intended to replace about 40% of pre-retirement income for most workers and less for wealthier employees because the benefits formula is progressive. Social Security Administration:

  • It collects data on wages earned each year.
  • Adjusts wages for inflation.
  • It applies a formula that gives retirees benefits equal to a percentage of their average wages over the 35 years of highest income.

This is how standard interest is calculated. Then, this standard benefit adjusts based on a person’s age when they first start getting Social Security checks.

However, there is a maximum wage that is calculated each year when the Social Security earnings record is created. If you earn in excess of maximum wages, any additional dollar of income is not withheld from Social Security taxes, nor is it counted when your average salary or benefits are determined. The average wage cap, called the wage base limit, is in place to prevent people who earn millions annually from getting huge Social Security benefits.

In order to get $4,194 max, the retiree will need to earn an amount equal to or exceeding the basic wage limit for the full 35 years. Then, since the age at which benefits are claimed also affects the amount of the checks, they will have to wait to claim Social Security until age 70, when benefits have reached their maximum, and there is no other benefit that can be delayed. That’s a full eight years after Social Security benefits first became available at age 62.

It’s not easy to earn an amount equal to the basic wage limit – especially when you have to do it every year over a 35-year period. The exact amount of this limit is adjusted each year to account for inflation, but the necessary amount is $147,000 in 2022 which is the inflation-adjusted equivalent of that amount each year. Since most people don’t earn anywhere near that much money, and since most people claim Social Security well before age 70, it’s easy to see why the average benefit is so much lower than the maximum benefit.

What can you do if you do not reach the maximum benefit?

Since there are good chances that you will get much less than $50,328 in retirement money from the Social Security Administration, you need to be prepared for the reality of how far your benefits will go. You can find out by visiting mySocialSecurity.govSign in to your account and estimate the age at which you will first claim benefits.

Since you may be surprised to learn how low a typical benefit amount is, it’s important to do this step early so you can start preparing for lower-than-expected Social Security payments. If you have a realistic idea of ​​how much Social Security supports, you can be sure to set savings goals that will enable you to get the security you deserve as a retiree.

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