How Retirement Benefits Are Calculated By Social Security

How are Social Security benefits calculated

Throughout your working life, you accumulate an earnings record (sometimes called a work record). That’s the foundation the Social Security Administration (SSA) uses to calculate your benefits, using a three-step process. First, Social Security adjusts your earnings for historical changes in U.S. wages, takes your 35 best-paid years and produces what it calls your average indexed monthly earnings (AIME). Only income up to the maximum taxable earnings — the annually adjusted cap on how much of your earnings are subject to — is counted. (The maximum taxable earnings in 2022 are $147,000.) Second, they apply a formula to that monthly average to determine your primary insurance amount (PIA) — the amount you’ll get each month from Social Security if you claim benefits at your full retirement age. That's 66 and 4 months for people born in 1956, gradually rising to 67 for people born in 1960 or later. The formula breaks down your average monthly wage into three parts. In 2022, it is: 90 percent of the first $1,024 of your AIME; plus 32 percent of any amount over $1,024 up to $6,172; plus 15 percent of any amount over $6,172. The sum of those three figures is your PIA, also known as your full retirement benefit. The sliding scale is designed to weight the benefit to help low-wage earners, who need retirement money the most. Finally, the SSA plugs in the age at which you claim benefits. They take a bite from the full benefit if you are younger than full retirement age — you can lose by starting Social Security at 62, the earliest possible age. But they for each month between full retirement age and 70 that you delay claiming benefits. You can gain up to 32 percent extra in benefits this way.

Keep in mind

The SSA recalculates your benefit annually, and figuring in the previous year’s income. If your previous year’s income ranks in your top 35 years of earnings, Social Security will shove aside a lower-earning year. That means your average monthly earnings figure will go up. If you worked fewer than 35 years, Social Security credits you with zero earnings for each year up to 35. Updated March 7, 2022

More on Social Security Benefits

Q& A Tool

Find the answers to the most common Social Security questions such as when to claim, how to maximize your retirement benefits and more. Cancel You are leaving AARP.org and going to the website of our trusted provider. The provider’s terms, conditions and policies apply. Please return to AARP.org to learn more about other benefits. Your email address is now confirmed. You'll start receiving the latest news, benefits, events, and programs related to AARP's mission to empower people to choose how they live as they age. You can also by updating your account at anytime. You will be asked to register or log in. Cancel Offer Details Disclosures

Close In the next 24 hours, you will receive an email to confirm your subscription to receive emails related to AARP volunteering. Once you confirm that subscription, you will regularly receive communications related to AARP volunteering. In the meantime, please feel free to search for ways to make a difference in your community at Javascript must be enabled to use this site. Please enable Javascript in your browser and try again.