Maximum Social Security Retirement Benefits

by Linda Richard
Maximum Social Security Retirement Benefits

The amount of money made over a lifetime of employment forms the basis for Social Security retirement benefits. Benefit computations are complex and not a venture for the average wage earner. Social Security uses computerized formulas for its computations. It provides online calculators for personal estimates and a Social Security statement each year with an estimated monthly benefit included.

History

The Social Security Administration had two electronic calculators as early as 1951 for computation of benefits, and by 1956, it had the first IBM computer built to specifications and installed, according to a 50-year review done in 1985. The use of computers allows the Social Security Administration to calculate estimates for real workers and statistical possibilities. These statistical possibilities cover the maximum Social Security benefits possible.

Significance

Although a worker only needs 40 quarters or 10 years of employment history to qualify for Social Security benefits, that is not how the Social Security computes primary insurance amount (PIA) for benefits. Social Security benefits calculations use the average indexed monthly earnings (AIME) to summarize 35 years of work history for each worker. The indexing is based on the national average wage index for two years prior to the year the worker can qualify for benefits, most often the year the worker is age 60.

Considerations

PIA calculations are for the month, estimating the benefits for full retirement age. Full retirement age is based on the birth date of the worker, and in 2010 is age 66 or 67. The PIA is adjusted for early retirement or late retirement for all years between age 62 and 70. With the computers available at the Social Security Administration, it updates these calculations as necessary. Updates occur when the worker takes retirement and again when the worker reaches full retirement age, if this is a different date.

Potential

A Social Security table for a hypothetical worker who makes the maximum Social Security taxable earnings from age 22 to year 2010 shows that retirement at age 65 in 2010 for this worker would result in benefits of $2,191 a month; retirement at age 70 in 2010 would provide $3,119 in benefits each month; age 62 early retirement for this hypothetical worker cuts the monthly benefit to $1,820.

Warnings

Social Security sets a maximum taxable amount of a worker's income for each year. In 2010, that maximum is $106,800. Income amounts in excess of the maximum are not subject to taxation unless you work for more than one employer in a year. In that event, your taxable income may exceed the table amounts, but Social Security does not count any amount in excess of the table when it calculates your benefits. Your personal maximum Social Security benefits occur when you reach age 70. There are no calculations added after that age.

About the Author

Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.

Photo Credits

  • Comstock/Comstock/Getty Images