Since its inception, Social Security has been one of the more prominent social programs in America. That’s not just limited to retirement, either. Few programs have as big of an impact and play as pivotal a role in people’s everyday lives as Social Security for retirees.
With Social Security being a large part of many people’s retirement income, it’s no wonder people aim to receive the maximum benefit possible. The more the merrier — especially in retirement, when income can be fixed for many people. For those aiming to receive the maximum Social Security benefit in retirement, here are some things to remember in 2024.
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How Social Security calculates your benefits
To calculate your retirement benefits, Social Security uses the 35 years when your earnings were the highest. These earnings are indexed (meaning adjusted for inflation), so they can be compared consistently through the years.
The 35 indexed earnings amounts are then added together and divided by 420 (the number of months in 35 years). If you don’t have 35 years’ worth of earnings, Social Security will follow the same steps but put in zeros for any years short of 35. This gives you the average indexed monthly earnings (AIME).
The role of the wage base limit
The wage base limit is the maximum amount of your earnings that Social Security taxes yearly. Any amount earned over the wage base limit is not subjected to the 12.4% Social Security tax. It’s typically 6.2% from both you and your employer unless you’re self-employed, in which case you’ll be responsible for the full 12.4%.
The wage base limit is important, because to be eligible for the maximum Social Security retirement benefit, you must have earned at least the wage base limit each year that Social Security uses to calculate your benefits. To qualify for the full maximum benefit in retirement, you must earn at least $168,600 this year if 2024 will be one of the years used in your calculation. Anything less will disqualify you from it.
Like Cost of Living Adjustments (COLAs), wage base limits are increased yearly to account for inflation. Here are the past five wage base limits before 2024:
| Year | Wage Base Limit |
|---|---|
| 2023 | $160,200 |
| 2022 | $147,000 |
| 2021 | $142,800 |
| 2020 | $137,700 |
| 2019 | $132,900 |
Data source: Author calculations
When you claim benefits matters
Earning above the wage base limit in the years Social Security uses to calculate your benefits is only half the equation. The other half, equally as important, is when you decide to claim benefits. Your full retirement age is when you’re eligible to receive your primary insurance amount (PIA), but you don’t have to claim benefits then.
Below are full retirement ages based on birth years:
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Claiming benefits before your full retirement age reduces your PIA based on how many months away from your full retirement age you are. Delaying your benefits past your full retirement age has the opposite effect, increasing them by two-thirds of 1% for each delayed month up until age 70. This works out to an 8% annual increase and a 24% total increase if your full retirement age is 67 and you delay until 70.
To qualify for the maximum Social Security benefit, you need to earn at least the wage base limit for the 35 years used in your benefits calculation and delay benefits until 70.
If you’re eligible to claim Social Security benefits — or you turn 62 in 2024 — you’ll want to make sure you don’t claim benefits until 70 if your goal is to receive the maximum benefit. Doing one without the other would disqualify you from receiving the full amount.
Don’t fret if you don’t qualify for the maximum benefit
Considering the wage base limit portion of receiving the maximum Social Security benefit, most people won’t come close to being eligible for it. Social Security estimates that only around 6% of workers earn about the wage base limit each year. That means the number is much lower for people who do it for 35 years.
Don’t give too much weight to not being eligible for the maximum benefit. The goal should be to have Social Security as supplemental retirement income if possible. Everyone’s situation is different, and Social Security is most (if not all) of many people’s income. That said, planning ahead and using resources like retirement accounts can help ensure you’re as financially prepared as possible.
