Why Most Retirees Won't Qualify for Social Security's Top Benefit

Many retirees rely entirely on Social Security, and the average monthly retirement benefit currently comes to about $2,088. But some beneficiaries receive as much as $5,181 a month, which is the maximum retirement payment the program can provide.

That amount may sound appealing, but most people will never receive it. Here's why the top Social Security benefit is so difficult to obtain, and what steps may help strengthen your retirement finances anyway.

How retirement benefits are calculated

Your Social Security retirement benefit is based on your personal earnings record. The Social Security Administration looks at your 35 highest-earning years and adjusts earlier wages to reflect changes in the national average wage.

The age you claim benefits also affects your monthly check. Filing at full retirement age means you receive your full benefit without a reduction. Claiming earlier, which can begin at age 62, lowers the amount you get.

If you wait beyond full retirement age, your benefit rises by 8% for each year you delay, up to age 70.

Why the maximum benefit is so hard to reach

To qualify for Social Security's highest retirement benefit, you generally need to do three things:

• Work at least 35 years
• Wait until age 70 to claim benefits
• Earn the equivalent of Social Security's wage cap for 35 years

The last requirement is the biggest obstacle, since many workers never reach that income level.

The wage cap is the amount of earnings subject to Social Security payroll taxes each year. It changes over time, but it remains much higher than typical wages.

For example, the wage cap is $184,500 this year. By comparison, median earnings are $1,251 per week, or about $65,000 a year.

Because most people never earn at or above the wage cap, they won't qualify for the maximum retirement benefit. Even if your income rises later in your career, reaching that level for 35 years is a steep challenge. Unless you begin your career with a very large salary, you probably should not expect to receive the program's top check.

Ways to increase your benefit anyway

Not qualifying for the maximum benefit does not mean you are stuck with a small one. Delaying your claim until age 70 is one of the easiest ways to increase your monthly payment.

You can also try to raise your earnings during your working years. That might mean changing jobs every so often, taking on overtime when available, or earning extra income through freelance work. Freelance income counts toward Social Security as long as it is reported and taxed properly, which is required by law.

How to cover the rest of your retirement income needs

Even a strong Social Security benefit may not be enough to cover all your expenses in retirement. That is why it helps to build other sources of income.

One option is part-time work after leaving your full-time job. Another is investing in assets that produce regular payouts, such as dividend stocks or bonds.

Saving in a retirement account throughout your career can also provide useful income later on. Automating monthly contributions to an IRA or 401(k) can help you build a nest egg over time. You do not need to start big; even saving $25 a month is better than saving nothing.

The bottom line

You may be disappointed to learn that Social Security's highest monthly benefit is probably out of reach.

Still, even retirees who do receive the maximum generally cannot live on that amount alone. People who qualify for $5,181 a month are typically high earners and are used to spending far more than that.

In fact, depending only on Social Security in retirement is one of the biggest financial mistakes a person can make, including for those eligible for the maximum benefit. Finding ways to supplement those checks is essential if you want to maintain the lifestyle you have worked hard to build.