4 Biggest Factors Affecting Your Monthly Social Security Benefit 

While the average Social Security benefit in 2022 is just $1,657, the maximum benefit is a whopping $4,194 per month. 

Since there’s huge variation in the income retirees can receive from Social Security, it’s important to understand how decisions over your life affect the money you’ll receive. Specifically, here are four important factors that determine the amount of Social Security benefits you’ll end up with. 

1. How much you earned during your career

Each year you work, you pay Social Security taxes on income up to a certain threshold called the wage base limit. In 2022, the wage base limit is $147,000. If you earn that amount or less, you’re taxed on all the money you make, while only part of your income is taxable if you earn more. 

The wages you’re taxed on are reported to the Social Security Administration. They become part of your earnings record. When it’s time to retire, your wages are adjusted for inflation and the SSA calculates your average indexed monthly earnings (AIME). Your standard Social Security benefit, called your primary insurance amount, equals a percentage of AIME. 

Because benefits are based on average earnings, the more you make — up to the wage base limit — the higher your monthly checks will be.  This is why it’s so important to advance your job skills and negotiate for the highest possible salary when applying for a new job or during annual performance reviews. 

2. How many years you worked

Social Security doesn’t always consider every year you worked when calculating your AIME. Instead, it considers only the 35 years you earned the most. 

The number of years of earnings that are part of your benefits calculation never change, regardless of how long you actually worked. That means that the length of your career history has a huge impact. 

If you work less than 35 years, your AIME calculation will include some years of $0 wages. If you put in only 30 years, then $0 in income would be reported in five of the years used to calculate AIME. Obviously, the more years of $0s included, the lower your average wage and the smaller your benefit. But if you work more than 35 years, some years when you didn’t earn as much will be excluded when AIME is calculated. 

Say you had a few years when you earned very little because you were working at an entry-level job or were unemployed part of the time. If your inflation-adjusted earnings are higher later, any extra years of work can replace lower earning ones in your AIME calculation. This would increase your average wage and result in a higher benefit. 

3. Your age when you claim benefits

Your primary insurance amount may not be the amount you end up. That’s because the age when you first get your retirement checks affects how much of your standard benefit you actually receive. 

If you want to receive exactly your PIA, you must receive your first Social Security check at exactly full retirement age (FRA). This was once 65 for everyone. It’s now between 66 and four months and 67 for any senior turning 66 in 2022 or beyond. Full retirement age was shifted to a later age slowly over time as a result of amendments to Social Security passed in 1983. 

Retirees who begin benefits before full retirement age are subject to early filing penalties. These equal 5/9 of 1% monthly if you claim your first check within 36 months of FRA. For each of the first three years benefits are claimed early, this adds up to a 6.7% annual reduction. 

Since checks can be claimed as soon as age 62, additional penalties apply for very early filers. Those who receive their first payment more than 36 months early face an additional monthly penalty of 5/12 of 1%. This adds up to another 5% annual reduction. The penalties can substantially reduce Social Security income, cutting your standard benefit down by as much as 30% if you claim Social Security at 62 with a full retirement age of 67. 

And they aren’t the only way that age affects benefits either. While early filers are penalized, late claimers are rewarded with a benefits increase of ⅔ of 1% per month. This results in an 8% annual increase for each year of delay between full retirement age and 70. 

Seniors who want the most money each month would thus be wise to wait as long as possible, while those who would prefer to claim payments early — even if each is smaller — may claim as early as the first age of eligibility at 62.

4. Whether you claim on a spouse’s work record or your own

For some seniors, there’s not just one type of Social Security benefit available. Many older Americans can choose to claim either spousal or survivor benefits. The amount of these is based on what a partner earned, rather than how much the claimer made over his or her own career. 

Spousal and survivor benefits sometimes add up to much more than what your own benefits would come out to — especially if you didn’t earn much or had a short work history. Spousal benefits could be as much as 50% of the primary earner’s standard benefit while survivor benefits could be even higher as a widow(er) could keep the benefits their partner was receiving at the time of death. 

These benefits may be available even after divorce, if the marriage lasted for a decade or longer. But retirees can’t claim both spousal or survivor benefits and their own retirement checks simultaneously so it’s important to know the rules for how these work. 

Ultimately, understanding the details about how benefits are calculated is good for every older American. If you don’t know how your decisions will affect the retirement income you end up with, you’ll want to find out the reality ASAP so you can plan accordingly for the role benefits will play in securing your future.  

As a next step in your learning about this topic, you should consider joining the nearly 400,000 subscribers on my YouTube channel! This is where I break down the complex rules and help you figure out how to use them to your advantage. 

And don’t leave without getting your FREE copy of my Social Security Cheat Sheet. The most important stuff from the 100,000 page website is all condensed down to just ONE PAGE! Get your FREE copy here.

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