I won’t sugarcoat it: Social Security isn’t going to save you if you don’t set enough aside for retirement. The program was only intended to supplement people’s own savings, and most people’s earnings histories won’t entitle them to anywhere near the $4,194 maximum monthly benefit.
In fact, only about 30% of beneficiaries get more than $2,000 per month. Below, we’ll take a closer look at the reasons why, and what you would need to do to join them.
How does the government calculate your Social Security benefit?
Calculating your average indexed monthly earnings (AIME) is the first step in determining your Social Security benefit. The government does this by taking your earnings figures from your 35 highest-earning years, adjusting them to account for inflation, adding those adjusted figures together, and then dividing the total by 420 — the number of months in 35 years. If you didn’t earn income during at least 35 years, then you’ll have some zero-income years factored into your calculation, which will drag down your average.
Next, the government plugs your AIME into a benefit formula that depends on your birth year. For those born in 1960 who have just become eligible to claim Social Security benefits this year, the formula is:
- Multiply the first $1,024 of your AIME by 90%.
- Multiply any amount over $1,024 up to $6,172 by 32%.
- Multiply any amount over $6,172 by 15%.
- Total your results from steps 1 to 3. This is your primary insurance amount (PIA).
In the above formula, $1,024 and $6,172 are known as the bend points. Those points change every year, but the rest of the formula remains the same.
Your PIA is the amount you would be entitled to if you filed for Social Security at your full retirement age (FRA). That’s anywhere from 66 to 67, depending on your birth year. If you claim earlier than your FRA, the government shrinks your checks to account for the extra years you’ll be receiving benefits. You can also delay claiming Social Security past your FRA, in which case you’ll receive delayed retirement credits. For each additional month you wait, these will boost the size of your monthly benefit by 0.67%, until you reach your maximum possible benefit of 124% of your PIA at 70.
What does it take to get $2,000 or more per month?
The average senior gets about $1,666 per month from Social Security right now, but many get a lot less and some get more. There is no magic formula for getting $2,000 or more per month from Social Security, but there are several things you can do to make it more likely that you will.
First, since your benefit is based on your income during your working years, anything you can do to boost your paychecks today will help you later — up to a point. The maximum annual income subject to Social Security payroll taxes in 2022 is $147,000. Earnings above that aren’t subject to those particular taxes, but they also don’t factor into the calculation of your AIME.
Based on the above benefit formula, you’d need an AIME of about $4,400 to get a PIA of $2,000. That amounts to an annual income of about $52,800 in 2022 dollars. More than half of people in the US earn less than that, though.
Workers who retire before they’ve worked for a total of 35 years will also get smaller checks. Spending more time in the workforce is one of the most straightforward ways to boost your benefit, and you don’t have to stop once you hit 35 years. Many people earn more later in their careers than they did when they were starting out. In the calculation of your AIME, if you can replace some of the lower-income years from your youth with higher-income late-career years, you’re going to boost your result.
Finally, claiming benefits early will shrink your checks. If you have a PIA of $2,000 and your FRA is 67, if you sign up for benefits as soon as you’re eligible — when you turn 62 — you’ll only get $1,400 per month. If you want to claim at 62 and still get Social Security checks that are in excess of $2,000 per month, you’ll need a much higher AIME.
How to know what to expect
While large Social Security checks can be a huge plus for your retirement finances if you can get them, it’s more important to know what you personally should expect to get from the program. Once you have a rough idea of how much you’ll receive from it each month, you can start to figure out how much of a nest egg you’ll need to build up on your own to afford the retirement you’re hoping for.
The best way to get that information is to create a my Social Security account. After answering some personal questions to verify your identity, you’ll gain access to a tool that can help you estimate what your monthly benefits would be at various starting ages. You can use this to help inform your decision about when you want to sign up for benefits.
Then, estimate your lifetime Social Security benefit. Multiply your estimated monthly benefit by 12 to get your estimated annual benefit. Next, multiply this by the number of years you expect to receive benefits. For example, a $2,000 benefit claimed monthly for 20 years would give you a lifetime benefit of $480,000. Subtract this from your total retirement costs to figure out your personal savings target. Then, develop a strategy to help you meet that goal.