Personal Finance

96% of Americans Can't Name the 5 Factors That Determine Your Maximum Social Security Benefit - Can You?

David Beren

Published: November 9, 2024 11:30 am

24/7 Wall St. Insights

• Social Security benefits can vary greatly. 
• You need to earn a certain amount if you want the maximum benefit. 
• Other factors like age and marital status can affect how much you receive.
• Also: Are You On Track to Retire? Take This Quiz and Find Out ^(Sponsored) 

One of the most notable aspects of earning Social Security is that most people don’t know how it works. According to a Nationwide Financial survey, a whopping 96% of Americans cannot name the five factors that will help how much you earn when you decide to draw this benefit.

This means that only 4% of all Americans know all five answers, which is a dangerously low number. The good news is that knowing all five things isn’t difficult and is something most people should know so they can work toward maximizing their benefits and enjoy a better overall retirement lifestyle. 

Work History

If you’re looking at one of the biggest factors that impact your maximum social security payout, it’s related to your work history. To be more clear, the amount of money you receive is based on the highest amount you earn across 35 different years of earning. 

If you have worked for over 35 years, as most people do, only your top earning years are included in the calculation. The good news is that the longer you work and earn, the more likely you will see a higher Social Security benefit payout when you start drawing money. 

Your Age

Another major factor influencing your maximum Social Security benefit is the age at which you start requesting payments. For most people, this means hitting the Full Retirement Age when they turn 66 or 67. At this point, you will receive your full benefit amount or the maximum amount of your payout. 

However, if you start requesting Social Security at age 62, your payouts will drop, potentially significantly. The reverse is true: if you delay payments until 70, you will take advantage of an 8% increase in your maximum monthly payout between your Full Retirement Age at 66/67 and 70. 

Earnings History

In many regards, your earning history and your work history, while separately calculated, are closely related. In this case, the work history pertains to the 35 years of work, but your earnings history is focused on how much you earned during those 35 years. 

What’s most important to know here is that there are earning caps, but if you hit the maximum wage cap, you’ll also likely receive the full payout when you start drawing Social Security. In 2024, the maximum wage cap is $168,100. 

If you make this amount over 35 years, you will draw the maximum amount of Social Security. For 2025, this wage cap will increase to $176,000, but the payment will not be adjusted. 

Benefit Start Date

At the current wage cap, drawing the maximum Social Security at 62 would equal $2,710 monthly. If you hit Full Retirement Age, it’s $3,822 monthly; if you defer till you are 70, it equals $4,873 annually. 

In other words, your benefit start date dramatically impacts how much you will earn with Social Security during your golden years. Waiting eight years to draw benefits between 62 and 70 is a $2,163 monthly payment difference, which may equal the size of someone’s mortgage, car payment, and the rest of their monthly bills. 

With this said, there is no question that when you start drawing your benefits should be openly discussed with your spouse or family. 

Marital Status

The last of the five factors that impact your maximum Social Security Benefit is related to your marital status. Spouses who didn’t work or had lower earnings than their spouses could be eligible to receive up to 50% of the higher-earnings spouses’ benefits upon divorce. Married couples, like individuals, are still eligible to draw Social Security benefits starting at 62 or deferred until 70. 

In addition, divorced individuals who had been married for more than 10 years may also qualify to receive up to 50% of Social Security benefits. Last but not least, if one spouse passes away, any surviving spouse can receive the higher of the two spouses’ benefits, providing a steady income and hopefully introducing some peace of mind.