Why some retirees wind up with a maximum Social Security benefit $1,830 lower than others

Why some retirees wind up with a maximum Social Security benefit $1,830 lower than others

Published July 12, 2022
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Each year, Social Security has a maximum benefit it pays out to workers who are receiving retirement income. But this max benefit is not the same for all retirees.

In 2022, those who claim benefits at age 62 have a maximum benefit of just $2,364, while those who claim benefits at age 70 could see checks as high as $4,194.

This is a huge discrepancy, and it’s helpful to understand why there is such a big difference in the maximum amount of money Social Security can provide to varying groups of retirees.  Knowing why can help you make much more informed choices about the best age to file for your first Social Security check. 

Why is there a maximum Social Security benefit?

The first big question you may have when considering why there are different maximum benefits is, why is there a max benefit in the first place? After all, Social Security pays out based on average wages that people earn over their lifetimes, so why do monthly checks cap out at $2,364, $4,194, or any number at all?

The simple answer is because of the wage base limit. See, not all income that is earned is subject to Social Security taxes or counted when benefits are calculated. A wage base limit, or maximum taxable income, is set each year. The purpose of this limit is to prevent the Social Security Administration from sending out checks totaling tens of thousands each month to very, very high earners. 

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The Social Security calculates benefits based on average wages, up to the wage base limit, during the 35 years when retirees earned the most. So the maximum Social Security benefit equals a percentage of the highest possible countable income that could have been earned during a 35-year period by any current retiree. 

In 2022, the wage base limit is $147,000. It’s adjusted for inflation each year, but it’s always a very high amount of income. That’s why the maximum Social Security benefit is so much larger than the average benefit. 

So now that you know why there’s a maximum Social Security benefit, it’s also important to know why there are different max limits for retirees of different age groups. It’s because benefits increase as people wait to claim them.

Retirees who are 66 or younger right now have a full retirement age (FRA) between 66 and four months and 67, but benefits can be claimed any time from age 62 to 70. A retiree who claims benefits at full retirement age gets their standard benefit based on their highest-35-earning years. A retiree who claims before FRA gets a benefit made smaller by early filing penalties, and a retiree who claims after FRA earns delayed retirement credits until age 70 that raise their monthly income. 

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So the upper limit for someone who claims benefits at age 62 is much smaller than the maximum for someone who claims checks at 70 because a person who was entitled to the biggest possible standard benefit based on maxing out their income would have had that benefit reduced by claiming at 62, while someone who waited until 70 would have seen it increased. 

Even if you do not earn the maximum possible income and aren’t on track for the largest possible Social Security check, it’s helpful to see how big the discrepancy is between the largest check available at 62 versus at 70. That’s because, regardless of what size your standard benefit is, it could also shrink substantially — or increase dramatically — depending on the age when you claim it.

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