Social Security was never intended to be your only source of retirement income. In fact, for disciplined investors, Social Security may not even be your single biggest source of income in retirement. However, if you can get the most out of the program you are required to participate in, you should do so.
To that end, let’s take a closer look at what kind of money you need to earn to earn up to $4,873 per month in Social Security retirement benefits.
It’s not just the numbers that matter, but that number is $168,600
In fact, there are three factors that determine your Social Security benefits. In addition to annual income, your age at the time you apply for retirement benefits and years of service are also factors. Simply earning an above-average wage is not enough.
However, as far as specific numbers are important right now, if you want to bank at some point in the future the equivalent of this year’s maximum benefit of $4,873, you would have to pay $168,600 (or more) this year. need to earn.
For the record, this wasn’t necessarily this number. For example, in 2023, the maximum percentage of your salary that was taxable for Social Security purposes was $160,200. The year before that, it was $147,000. Thirty years ago, the Social Security Administration stopped collecting Social Security taxes once wages reached $60,600. The amount has increased gradually since the system began in 1937 to support ever-increasing benefits due to inflation. As long as you earn as much as (or more than) the limit each year for enough years (more on that below), you’ll be eligible to receive the maximum monthly benefit.
| Year | Maximum taxable income (for social security purposes) | Year | Maximum taxable income (for social security purposes) |
|---|---|---|---|
| 1985 | $39,600 | Year 2005 | $90,000 |
| 1986 | $42,000 | 2006 | $94,200 |
| 1987 | $43,800 | 2007 | $97,500 |
| 1988 | $45,000 | 2008 | $102,000 |
| 1989 | $48,000 | 2009 | $106,800 |
| 1990 | $51,300 | 2010 | $106,800 |
| 1991 | $53,400 | 2011 | $106,800 |
| 1992 | $55,500 | year 2012 | $110,100 |
| 1993 | $57,600 | 2013 | $113,700 |
| 1994 | $60,600 | 2014 | $117,000 |
| 1995 | $61,200 | 2015 | $118,500 |
| 1996 | $62,700 | 2016 | $118,500 |
| 1997 | $65,400 | 2017 | $127,200 |
| 1998 | $68,400 | 2018 | $128,400 |
| 1999 | $72,600 | 2019 | $132,900 |
| the year of 2000 | $76,200 | 2020 | $137,700 |
| 2001 | $80,400 | 2021 | $142,800 |
| 2002 | $84,900 | 2022 | $147,000 |
| 2003 | $87,000 | 2023 | $160,200 |
| 2004 | $87,900 | 2024 | $168,600 |
Data source: Social Security Administration.
In addition to your earnings, you must have worked at least 35 years, because the Social Security Administration considers the 35 years of your highest earnings when calculating your benefits. For example, if you have only worked for 30 years, the formula will allocate the missing annual earnings as $0.
Earning such a high income for at least 35 years is already difficult enough, but there’s an additional requirement to qualify for the maximum Social Security benefits. That means he will have to wait until he is 70 years old to apply. Your Full Retirement Age (FRA) is likely to be between 65 and 67 (depending on when you were born). But you also need delayed retirement credits, which you earn by waiting to claim Social Security above your FRA. Therefore, you must wait until you reach the maximum credit limit at age 70 to receive your benefits.
Planning can help you achieve better results
If you fall short of any of these numbers, don’t worry. Most people don’t. According to the Social Security Administration, the average retirement benefit this year is significantly lower at $1,907 per month.
The problem is that you can actually earn even more retirement income than Social Security provides without earning anywhere near the taxable income shown in the table above. Let’s look at a hypothetical example.
Given the current interest rate environment, it’s possible to reliably earn 5% each year. Realistically, this includes a combination of stock dividends as well as interest earned on bonds and other debt securities, and the amount earned can vary slightly from year to year. But 5% per year is a good starting number to work towards.
At this rate of return, you would need approximately $500,000 to generate the equivalent of $2,000 per month, for example.
The question then becomes a simple one. How do you save $500,000? Assuming the stock market’s historical average annual return of 10% continues for the foreseeable future, putting away $3,000 a year for 30 consecutive years will do the trick. If you only have 25 years left, you would need to invest $4,500 each year. If you only have 20 years from now to start living off your savings, you would need to come up with an additional $8,000 a year to invest in the market.
Image source: Getty Images.
Of course, these are just rough numbers and are meant to help you roughly plan how much you’ll need to invest on your own to supplement or replace your Social Security retirement savings. If in the future he needs an income of around $4,000 a month, he will need twice the savings amount suggested above.
Still, even if you don’t earn enough to hit Social Security’s taxable income limits each year, you can still better yourself than relying on Social Security alone. The key is to take the time to build up your nest egg, even if it means sacrificing some expenses.
