Social Security benefits are calculated based on your work history, specifically your 35 highest-earning years, adjusted for inflation, to find your Average Indexed Monthly Earnings (AIME). Then a formula with set "bend points" is applied to your AIME to determine your Primary Insurance Amount (PIA), which is the benefit you receive at full retirement age.
Steps to Calculate Social Security Benefits:
- Determine AIME:
- Take your 35 highest-earning years and index them to account for inflation.
- Sum these adjusted earnings and divide by 420 months (35 years x 12 months). If you worked fewer than 35 years, zeros are included for missing years.
- Calculate PIA Using Bend Points (2025 example):
- 90% of the first $1,226 of AIME
- 32% of the AIME amount between $1,226 and $7,391
- 15% of AIME above $7,391
- These parts are summed, and the total is rounded down to the nearest dime.
- Adjust for Retirement Age:
- If you take benefits before full retirement age (FRA), they are reduced.
- If you delay benefits past FRA up to age 70, your benefits increase due to delayed retirement credits.
- Qualifying Requirements:
- You must have earned enough credits (40 credits, typically 10 years of work) to qualify for benefits.
This calculation results in your estimated monthly Social Security benefit amount payable at full retirement age. These steps outline the precise formula and considerations used by the Social Security Administration to calculate the benefits for retirement, with detailed adjustments for inflation, work history, and retirement timing.
