The maximum monthly Social Security benefit payment for a person applying in 2017 at full or normal retirement age is $2,687. 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 2017 is $1,360.

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. If you retire at age 66 in 2017, your maximum benefit will be $2,687. However, if you have reached age 67 or older, you will be granted credits for your deferred retirement. In 2017, deferred retirement earns an additional 8% per year over full retirement age, up to age 70, meaning that if you retire at age 70 in 2017, your maximum benefit would be $3,538 – 24% higher than those for someone retiring at 66 with the same earnings history. On the other hand, should you decide to collect benefits before you reach full retirement age, your benefits will be reduced to account for the additional years over which total benefits must spread. For example, if you were born in 1960 or later and your full retirement age is 67, retiring at age 62 would reduce your payout by 30%. Click here for a Social Security Administration calculator that can give you more personalized information.

The Advisor Insight

According to the Social Security Administration (SSA), the maximum benefit paid at Full Retirement Age (FRA) in 2018 is $2,788. 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.

Marguerita M. Cheng
Blue Ocean Global Wealth
Gaithersburg, MD