The $62,000 Question: Why Some Social Security Recipients Score a Massive Payday and Others Don’t
Social Security hands some retirees an annual check that dwarfs what most workers expect, and the gap comes down to two factors almost anyone can understand. Knowing which one you can still control might change when you decide to stop…
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If you’re thinking it’s a bad idea to try to retire on Social Security alone, you’d be correct. The average monthly Social Security benefit today is only $2,086. On an annual basis, that’s a $25,000 paycheck. That’s unlikely to work for you unless your retirement expenses are unbelievably small.
But some Social Security recipients collect a lot more than $25,000 a year. Those who are eligible for the program’s maximum monthly benefit this year can get a little more than $62,000.
If you’re wondering why some Social Security recipients get such a large payday while others don’t, it boils down to how the program calculates those monthly benefits.
What goes into your Social Security benefits
Social Security benefits are based on two factors — lifetime wages and your filing age. The Social Security Administration takes your 35 highest-paid years of earned wages into account when calculating your monthly benefits. Within that formula, wages earned earlier in your career are indexed for inflation.
You’re entitled to your monthly benefit based on your wage history without a reduction at full retirement age (FRA), which is 67 for people who were born in 1960 or later. But if you file ahead of FRA, that benefit gets reduced. And if you delay your claim past FRA, that benefit gets an increase.
The earliest age to sign up for Social Security benefits is 62. You’ll face a 30% reduction for claiming Social Security as early as possible compared to waiting until 67.
On the flipside, for each year you delay Social Security past FRA, your benefits grow 8%. That incentive ends when you turn 70. But you could potentially give your Social Security checks a 24% boost if you don’t file at 67 but, rather, wait three years instead.
Why some Social Security recipients get a huge check
People who are entitled to $62,000 a year in Social Security have a history of very high earnings. They’re also people who waited until age 70 to file for benefits.
If you’re eager to increase your Social Security checks, you may not be able to change your work history. But you can control when you file.
If you push yourself to keep working until age 70, delaying your claim as long as possible could be feasible. And that could leave you with a much larger monthly check than your FRA benefit.
Of course, the irony is that even people who collect Social Security’s highest possible benefit still tend to need income to supplement it. People who are eligible for $62,000 a year in Social Security are, by nature, high earners. So $62,000 might be a significant pay cut for folks in that boat.
In fact, you should realize that the benefit Social Security pays you in retirement will probably need to be supplemented by outside income in an ideal world, no matter how large or small it is. So your best bet is to save consistently for retirement and choose investments that can pay you on a regular basis, like bonds and dividend stocks.
Even if your annual Social Security benefit isn’t close to $62,000, that sum, coupled with retirement plan withdrawals and investment income, could make your senior years pretty comfortable.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
