In 2024, the wealthiest recipients of Social Security receive $4,873 each month, totaling over $58,000 annually. Households with multiple beneficiaries can receive even greater amounts.

This already significant sum is set to increase further. Beginning in 2025, Social Security benefits will rise for all recipients, including those at the highest tier.

Next year, the government is expected to distribute the largest benefits in the program’s history. However, only a few individuals will qualify for these hefty payments.

Understanding How the Social Security Administration Calculates Your Payments

Each year, the Social Security Administration reassesses its maximum benefit in line with the evolving benefit formula. It all starts with determining your average indexed monthly earnings (AIME), which reflects your average monthly earnings over your 35 highest-earning years, adjusted for inflation. If you’ve worked for less than 35 years, zero-income years will be included in the calculation.

It’s important to note that AIME does not always account for all earnings in a particular year for everyone, especially for high-income earners. This is due to a cap on the income that is subject to Social Security payroll taxes, which is set at $168,600 for 2024. Earnings above this limit do not enhance your Social Security benefits.

Typically, AIME increases over time as average earnings rise. This is one key reason why the maximum Social Security payouts are on the rise.

The next phase of the calculation involves determining your primary insurance amount (PIA). The formula for 2024 is as follows:

1. Take the first $1,174 of your AIME and multiply it by 90%.
2. Take any income above $1,174 up to $7,078 of your AIME and multiply it by 32%.
3. Multiply any income over $7,078 by 15%.
4. Sum the results from Steps 1-3 and round down to the nearest $0.10.

This method remains relatively stable, with only the bend points—$1,174 and $7,078 in this case—changing annually. These bend points are updated each year, contributing to higher average benefits over time. However, the bend points in effect when you turn 60 are always used to calculate your benefits, regardless of when you apply.

For most individuals, there’s an additional step in the Social Security benefit calculation. The government makes adjustments to your PIA based on your application age and your full retirement age (FRA), which for most individuals ranges between 66 and 67, depending on when you were born.

Choosing to claim benefits early reduces your payments while waiting until after your FRA increases your checks. The longer you wait, the greater the increase to your checks, as illustrated in the following table:

Data source: Social Security Administration.

This process culminates in your monthly Social Security payment. It is also how the maximum benefit for the year is determined.

Expected Maximum Social Security Benefit for 2025 and Eligibility Criteria

1. Work for a minimum of 35 years prior to applying for benefits to eliminate zero-income years from your benefit calculation.
2. Earn the maximum income subject to Social Security payroll taxes for all those 35 years.
3. Apply for benefits at age 70 or older.

Achieving this is difficult for many, as not everyone has reported a sufficiently high income throughout their working life. Nevertheless, those who meet these criteria will receive a historic $5,108 per month in 2025, totaling $61,296 for the year.

This amount significantly surpasses the average benefit of $1,920 received by retirees in August 2024, which is anticipated to rise to $1,968 after applying the 2.5% cost-of-living adjustment (COLA).

Your benefit for 2025 will likely fall short of the maximum or average, so it’s advisable to calculate your estimate. You can do so by adding 2.5% to your current payments for a reasonable approximation. Alternatively, you can wait to receive a personalized COLA notice from the Social Security Administration in December. This notice will also be accessible in the Message Center of your my Social Security account, if you possess one, starting in early December.

The Motley Fool has a disclosure policy.

The Motley Fool partners with YSL News to provide financial news and insights intended to help individuals improve their financial situation. Its content is produced independently from YSL News.

The $22,924 Social Security Windfall Most Retirees Fail to Notice

Special Offer from the Motley Fool: If you’re among the many Americans who have fallen behind on retirement savings, there are several little-known “Social Security strategies” that could significantly enhance your retirement earnings. For instance, one simple tactic could potentially add as much as $22,924 to your annual income!

After mastering how to optimize your Social Security benefits, you can approach retirement with great confidence and the reassurance we all seek.