Q. What is the maximum benefit you can get from Social Security this year? And how hard is it to qualify for that amount?
A. To answer your second question first, qualifying for the maximum Social Security benefit is very difficult—it's the equivalent of winning a benefits Powerball. To get the highest benefit possible at your full retirement age (FRA), your income needs to have been at or above the Social Security earnings ceiling (the amount of income subject to payroll tax) each year for at least 35 years since age 22. The payroll earnings cap is $127,200 in 2017; in 1982, 35 years ago, it was $32,400. Only about 6% of workers earn above the maximum in any given year.
For someone who racked up maximum taxable earnings each year, and who reaches the FRA of 66 in 2017, the maximum benefit would be $2,687 a month, or $32,244 a year. By contrast, the average monthly benefit is just $1,342 a month.
There's also what we might call a maximum maximum benefit. If you wait till age 70 to file, you get delayed retirement credits that boost your benefits by 7% to 8% a year for each year you wait. If you claim at age 70 this year, the maximum benefit is $3,538, or $42,456 a year. Only about 2% of workers wait to 70 to claim.
What about people who have been retired for a while? Their benefits have been adjusted over time with cost-of-living adjustments (COLAs) based on increases in the consumer price index. But those who retired years ago with top benefits generally collect less today than new retirees with maximum earnings receive. For instance, those who retired at the FRA of 66 in 2010, getting the maximum benefit then, will collect $2,559 in 2017, almost 5% below the maximum benefit for a new age-66 retiree, according to Social Security. That's partly because the maximum benefit rises over time to reflect increases in Social Security's average wage index, which has often outpaced consumer inflation.
To figure out how close you are to getting the maximum amount, open an online Social Security account, which will let you access your annual earnings record. Then compare what you earned each year to the benefits ceiling for that year. That will give you a rough idea how close you are to reaching the max.
One caveat: at some point, it's possible that the cap on earnings may be raised much higher to bring in more tax revenue, as part of an eventual reform package to shore up Social Security's finances. Back in 1983, some 90% of workers’ compensation was subject to Social Security payroll taxes; since then it has dropped to less than two-thirds.
If the cap was raised to cover 90% of earnings, as some reformers have advocated, it would stand at $270,000, more than double the current level. "If that happens, it will be nearly impossible for workers to qualify for the maximum amount, but they will better able to count on their benefits," says CPA and blogger Michael Piper of ObliviousInvestor.com.
Still, if you're close to retirement now, and your earnings have consistently exceeded the payroll cap, you have a great shot at maxing out. For everyone else, though, even a modest amount of Social Security income, which is guaranteed and inflation-adjusted, can make a big difference to your retirement.