Social Security benefits replace a percentage of a person's pre-retirement income. When you work, you pay taxes into Social Security and once you retire, you'll receive a percentage of that back. A person's retirement benefit primarily depends on his or her lifetime earnings while they worked.

In 2021, an average of 65 million Americans per month received a Social Security benefit, totaling more than $1 trillion in benefits paid during the year. However, retirement beneficiaries only receive 40% of their pre-retirement income from Social Security (on average), so it's important to know how much you'll receive and make a plan for the remaining 60%.

The first part of that plan can be understanding how to maximize your Social Security benefit. Read on to learn about the highest Social Security payment you can receive, how benefits are calculated, and how you can get the maximum payment.

How is my Social Security benefit calculated?

When the Social Security Administration (SSA) calculates a person's retirement benefit, they use the national average wage indexing series to index that person's earnings. This helps to ensure the benefits reflect the general increase in standard of living that occurred during the person's working lifetime.

• Social Security determines the year of first eligibility for benefits. Retirement eligibility age begins at 62. So, if a person turns 62 in the year 2023, then the year of eligibility is 2023.
• Next, Social Security indexes earnings to the average wage level two years prior to the year of first eligibility. So, for the person turning 62 in 2023, Social Security would index the earnings to the average wage index for 2021. In 2021, the average wage was $60,575.07.
• Social Security then multiplies the earnings in a year before 2020 by the ratio of $60,575.07 to the average wage index for that year.

Essentially, benefits are calculated by combining your 35 highest-paid years (if you worked for 35 or more years). These wages are indexed to account for inflation, and wages from previous years are multiplied by a factor based on the years in which the salary was earned and the year in which you reach age 60.

Then, the Average Indexed Monthly Earnings (AIME) is computed by dividing the sum of all indexed wages by 420 (35 years in months). Other factors, such as when benefit collection begins, the age you're retiring, and if you continue to work while collecting benefits, also impact your final calculation.

Note: Even if you do not have 35 years' worth of income, Social Security still calculates based on the 35-year standard. In other words, if you only paid the Social Security tax for 25 years, SSA will add that income and divide the total by 35, not 25. That's another reason it's so important to have as many income-producing years as possible before claiming Social Security benefits.

Highest Social Security payment

In the example below, the initial benefits amount assume retirement in January of 2022, with maximum-taxable earnings since age 22. The Average Indexed Monthly Earnings summarizes a person's earnings.

Retirement in January, 2022

At age 62

• AIME: $11,430
• 2022 monthly benefit: $2,364

At age 65

• AIME: $10,437
• 2022 monthly benefit: $2,993

At age 66

• AIME: $10,141
• 2022 monthly benefit: $3,240

At age 67

• AIME: $10,049
• 2022 monthly benefit: $3,568

At age 70

• AIME: $9,446
• 2022 monthly benefit: $4,194

So, the highest Social Security payment someone could receive is $4,194 in 2022. This is if they wait until age 70, which is considered late retirement, to collect benefits, and if they've contributed the maximum amount since age 22. Those who apply for benefits at normal retirement age, which is age 66 (as of 2022), would receive $3,240 per month.

In comparison, the average Social Security benefit for a retiree was $1,657 in 2022, up from $1,565 in 2021. The biggest reason for this is Social Security recipients will receive a 5.9% cost of living increase due to high levels of inflation.

How to get the maximum Social Security benefit

It's important to pay Social Security taxes and earn "credits" toward your benefits. If you were born in 1929 or later, you'll need 40 credits (typically 10 years of work) to even apply for benefits.

How much you receive depends on a number of factors:

• Start contributing to Social Security as early as possible to increase the amount of earnings that can be indexed. The longer you work, the more years you'll have paying into the benefit.
• You'll be eligible for the maximum benefit if your earnings equal or exceed Social Security's maximum taxable income for at least 35 years of your working life. In 2022, this maximum limit is $147,000 per year.
• Avoid having any years where you earn $0 if you want to receive the maximum benefit. This is because each of those years will be entered as zero when calculating your AIME. This will lower the benefit amount you're eligible for.
• The age you begin receiving benefits also affects how much the benefit will be. For example, while full retirement age (when you can start receiving your full retirement benefit amount) is age 66, you'll earn more if you delay benefits. The amount of your benefit will continue to increase up until age 70, which is delayed retirement age.

The amount of benefits you receive depends on the earnings shown on your record. Regularly check your Social Security earnings history to help prepare for receiving benefits.

You can also use Social Security earnings calculators to estimate your amount of Social Security benefits. By adjusting your age of retirement, annual income, expected salary increases, and rates of inflation, you can get a rough monthly and annual estimate.

How to calculate how much to save for retirement

Knowing how much you'll need to save for retirement depends on a number of factors, including:

• What age you'll retire
• If you'll continue to work part-time during retirement
• Debts you'll take into retirement
• Your desired retirement lifestyle

A general rule of thumb is that you'll need to replace 70%-85% of your pre-retirement income once you retire. For a quick estimate, multiply your current annual spending by 25. That's what your savings will have to be in retirement to allow you to withdraw an average of 4% each year, which is what experts recommend.

Start by using a Retirement Estimator calculator, such as the one provided by Social Security, to estimate your Social Security benefit amount based on your earnings record. You can then also use other types of retirement calculators to estimate how much you'll need to have saved to retire at different ages.

It's important to plan for how your expenses will change in retirement. For example, your transportations costs will likely decrease, but health care costs may increase. If you plan to downsize or rent, your mortgage payments may decrease, but if you plan to travel more, you'll need more funds for leisure. Analyze what you spend now and estimate how that will change in the future to know if you'll need more or less in savings.