The maximum monthly Social Security benefit at full or normal retirement age is $2,788 for 2018 and $2,861 for 2019. However, the maximum allowable benefit amount is only payable to those who had the maximum taxable earnings for at least 35 working years. Depending on when you retire and how much you made while working, your benefits may be considerably less. The estimated average monthly benefit for "all retired workers" in 2019 is $1,461.

Social Security benefits are calculated by combining your 35 highest-paid years (if you worked for more than 35 years). First, all wages are indexed to account for inflation. Wages from previous years are multiplied by a factor, based on the years in which each salary was earned and the year in which the claimant reaches age 60, to give an amount comparable in buying power based on the current value of the dollar. Accounting for this valuation change is important, because a salary of $14,000 was far more impressive in 1954 than it is today.

Once all wages have been indexed, the Average Indexed Monthly Earnings, or AIME, is computed by dividing the sum of all indexed wages by 420 (35 years of months – so months when you didn't work, if you worked fewer than 35 years are figured in as zeros). The benefit amount is then calculated based on factors such as the year in which collection begins, whether the claimant has reached full retirement age and whether the claimant continues to work while collecting benefits.

In addition, the age at which you retire can affect your benefit amount greatly.

For example, someone who turns 62 in 2019 will reach full retirement age at 66 years and 6 months, and will be eligible at that point for a monthly benefit of $1,000. However, opting to receive benefits at age 62 will reduce their monthly benefit 27.5% to $725 to account for the longer time you receive benefits, according to the Social Security Administration. That decrease is usually permanent.

If they wait to get benefits until age 70, the monthly benefit increases to $1,280. The larger amount is due to the delayed retirement credits earned for the decision to postpone receiving benefits past full retirement age. In this example, that higher amount at age 70 is about 76% more than the benefit they would receive each month if benefits started at age 62, or a difference of $555 each month.

Click here for a Social Security Administration calculator that can give you more personalized information.

Advisor Insight

Marguerita M. Cheng, CFP®, CRPC®, RICP, CDFA
Blue Ocean Global Wealth, Gaithersburg, MD

According to the Social Security Administration (SSA), the maximum benefit paid at full retirement age (FRA) in 2019 is $2,861. Bear in mind that this is the maximum benefit at FRA, but you can defer your benefits and increase your Social Security benefit. Here are some examples:

  1. Julia Child retires and delays claiming benefits two years beyond her FRA. She will receive a monthly benefit 16% larger than her primary insurance amount (PIA): 2/3 x 24 = 16%. By deferring her benefits, Julia permanently increased her $1,400 FRA benefit to $1,624.
  2. James Brown retires and delays claiming benefits four years beyond his FRA. He will receive a monthly benefit 32% larger than his PIA: 2/3 x 48 = 32%. By deferring his benefits, James permanently increased his $1,600 FRA benefit to $2,112.