This is the salary you must earn

Social Security is the benefit we all wait to claim, its meaning is clear for most of us, our working years are over, and we can now kick back and relax, enjoy our golden years travelling with friends and family, free of all responsibilities adjacent to a job. What a dream. But to accomplish that dream, the main object you will be up against is money.

And in this case, knowledge is power. Knowing how much money you will need to earn to get the maximum payments, for how long and how much you will need to put aside to keep your lifestyle or one comparable is important and it is a sort of math that is better done by a professional, but here you will find the highlights and some basic numbers you should take into account.

First and foremost, the primary factor that will determine your Social Security payments is your career, or at least a very big part of it. Your earnings for the past 35 years in which you earned the most will be the ones being averaged out to find out how much money you will receive in retirement. So maybe it is time to go for that promotion or change jobs to a better paying position, because even with the age of retirement going up, 35 years of well-paying salaries take a lot of time to accumulate.

Some people seem to think only the last few years (usually when they are making the most) count, but a consistent lifetime of earnings is worth a lot more in this average than just two of three years or higher earnings.

Social Security calculator

Going directly to the calculations, the Social Security Administration determines your benefit amount by evaluating your lifetime earnings. This process involves adjusting your actual earnings to reflect changes in average wages since the years in which you received those earnings. This average is entered into a pre-made formula to figure out the primary insurance amount, which is the amount of money that you will be entitled to come your Full Retirement Age (FRA).

The formula is complex, but according to the Social Security administration “The PIA is the sum of three separate percentages of portions of average indexed monthly earnings. The portions depend on the year in which a worker attains age 62, becomes disabled before age 62, or dies before attaining age 62. These percentages are 90%, 32% and 15%”

The particular dollar amount changes, but the percentages stay the same. As of today in 2024 and following the formula, the amount of money you need to earn is $168,600 to receive the maximum benefit. When adjusted for inflation and assuming you have paid the maximum taxable amount, this will leave you with $3,822 at Full Retirement Age. However, if you chose to retire as early as possible at 62, your maximum benefit would be $2,710 and if you wait retire at age 70 and accumulate the extra 8% your maximum benefit would be $4,873.

Of course, very few people will have the perfect career with the maximum contributions always paid to Social Security, so your numbers will not be as clear cut. Consulting the Social Security webpage to find out more information about your specific tax bracket is advisable. And if math is not your strong suit, visiting a financial advisor that can help you make sense of the formulas and your earnings may be worth the cost.

Still, remember that Social Security payments are not meant to be the only source of income in your golden years, and that saving for retirement should be a process that you start as soon as possible.