Social Security retirement benefits are monthly payments designed to replace a percentage of a person’s pre-retirement income. In 2021, about 65 million Americans received a Social Security payment each month, totaling more than $1 trillion in benefits paid during the year.

These people paid taxes into Social Security while they worked, so once they retired, they received a percentage of that back. The amount that beneficiaries receive will vary depending on their lifetime earnings, but on average people only receive 40% of pre-retirement income.

Understanding how your Social Security payment is calculated, what the highest payment you can earn is, and how to make the most of your Social Security benefit can all help you better financially plan for retirement.

What is the highest Social Security payment?

Along with other factors, the longer you wait to get your Social Security benefits, the higher your monthly payment will be. Early retirement, or receiving benefits at age 62, will pay less than those who delay retirement, or don’t receive benefits until age 70.

In this example, the initial benefits payment assumes retirement in 2023, with maximum-taxable earnings since age 22.

In 2023, the highest Social Security payment someone could get is $4,555 per month, but they must wait until age 70 to collect benefits and must have contributed the maximum amount since age 22.

If you apply for benefits at normal retirement age (age 66) and contributed the max amount since age 22, in 2023 you’d receive $3,506 per month.

How Social Security payments are calculated

The Social Security Administration (SSA) calculates a person’s payment using the national average wage indexing series, which indexes that person’s earnings while they worked. Doing this helps make sure payments reflect the general rise in standard of living costs that happened during a person’s lifetime.

To calculate payments, Social Security first determines the first year of eligibility for benefits. For most, retirement eligibility begins at age 62, so if a person turns 62 in 2023, their year of eligibility is 2023.

Then, those earnings are indexed to the average wage level two years prior to the year of first eligibility. For example, if you turn 62 in 2023, earnings would be indexed to the average wage index for 2021, which was $60,575.07.

Finally, Social Security multiples the earnings in a year before 2020 by the ratio of $60,575.07 to the average wage index for that year. What this does is combines your 35 highest-paid years, then wages are indexed to account for inflation, and other factors are taken into consideration based on the years where salary was earned and the year where you turned 60.

If you don’t have 35 years’ worth of income, your payments are still calculated based on the 35-year standard. This is why it’s so important to have as many income-producing years as possible prior to receiving Social Security payments.

The Average Indexed Monthly Earnings (AIME) is then calculated by dividing the sum of all indexed wages by 420, or 35 years in months.

Other factors taken into consideration include:

• When you begin collecting benefits
• The age you retire
• If you continue to work after starting to collect benefits

Figuring out these calculations can be confusing, so the SSA offers calculation examples, calculators, and other resources to help you determine your payment.

Maximizing Social Security payments

If you were born in 1929 or later, you’ll need 40 credits to even apply for Social Security benefits, in addition to having paid Social Security taxes while working. The maximum payment you’ll receive depends on a number of factors, but a few ways you can maximize your payments include:

• Contribute to Social Security as early as possible. This increases the amount of earnings you have that can be indexed because the longer you work, the more years you’ll have paying into the Social Security benefit.
• Earnings should equal or exceed Social Security’s maximum taxable income. If you can do this for at least 35 years of your working life, you’ll be eligible for the maximum payment. In 2022, this amount is $147,000.
• Avoid having $0 earning years. Each year you earn $0 in income will be entered as zero when calculating your AIME, which will decrease the payment you’re eligible for.
• Wait to start collecting Social Security. If you can wait until delayed retirement age (age 70), you’ll earn more than if you start collecting benefits at early retirement age or full retirement age.

Using Social Security payment calculators, you can estimate how much your monthly payment will be. These calculators allow you to adjust your age of retirement, annual income, rates of inflation, salary increase, and more to help you get a rough estimate. You should also check your Social Security earnings history, which can help you understand your future payments.