Q: I am 74 years old and have been getting Social Security for almost 10 years. When I worked, I always paid the maximum Social Security tax, but I'm not getting the maximum Social Security benefit. My wife says I shouldn't worry about it, but this has always bothered me. Shouldn't I be getting the maximum benefit?
A: I've been telling people for years not to get hung up on this "maximum" Social Security business. And now I'm telling you the same. I'll explain why in a minute.
But first, this interesting sidelight: During my 32-year career with the Social Security Administration, I probably had 5,000 people ask me about the "maximum" Social Security benefit, and exactly 5,000 of those folks were men. I'll let Freudian psychiatrists analyze that one!
So why do I tell guys not to get hung up about the maximum Social Security benefit? Because there really is no "maximum" Social Security benefit!
Having said that, some of you might wonder why the Social Security Administration announces the "maximum" Social Security retirement benefit every year. For example, in 2009, the so-called maximum benefit was listed as $2,323. But if you had read the small print when the government published this number, you'd have learned that $2,323 is the highest retirement benefit that can be paid to someone who was born in 1943 and will be retiring at age 66 in 2009.
A Social Security retirement benefit is based on a person's highest 35 years of earnings. Essentially, the higher your earnings over those 35 years, the higher your Social Security benefit will be. But because the law sets a maximum amount of earnings that can be taxed for Social Security purposes each year, there will obviously be a corresponding maximum retirement benefit that can be paid each year.
And because the maximum amount of earnings that can be taxed goes up each year, the so-called "maximum" Social Security benefit goes up each year. Conversely, the older you are and the longer it has been since you retired, the lower your "maximum" benefit will be.
In other words, assuming as you said that you always paid the maximum Social Security tax every year until you retired, that means the retirement benefit you are getting is the highest rate that could be paid to someone who retired 10 years ago.
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