How to Calculate Social Security Benefits: A Step-by-Step Guide

A building complex convention determines how your Social Security benefits are calculated. The follow factors go into the convention :

  • How long you work
  • How much you make each year
  • Inflation
  • At what age you begin taking your benefits

Take a front at how these factors affect the benefits you will receive and how the Social Security Administration calculates its figures.

Key Takeaways

  • Your Social Security benefit is decided based on your lifetime earnings and the age when you retire and begin taking payments.
  • Your lifetime earnings are converted to a monthly average based on the 35 years in which you earned the most, adjusted for inflation.
  • Those earnings are converted to a monthly insurance payment based on your full retirement age.
  • Your monthly payment will decrease or increase if you retire earlier or later than your full retirement age.

How Is Social Security Calculated ?

There is a three-step process used to calculate the sum of Social Security benefits you will receive .

Step 1: Use your earnings history to calculate your Average Indexed Monthly Earnings ( AIME ).
Step 2:  Use your AIME to calculate your elementary insurance come ( PIA ).
Step 3: Use your PIA, and adjust it for the age when you will begin receiving benefits .

You can use a copy of your Social Security instruction that provides your earnings history to plug your own numbers into the formula below .

step 1 : Calculate Your monthly Earnings

Your Social Security benefit calculation starts by looking at how long you worked and how much you made each year. It is used to calculate your AIME. here ‘s how to find it .

number Each year ‘s Earnings

Your earnings history is shown on your Social Security statement, which you can now obtain on-line .

In the table below, sample earnings for a conjectural worker born in 1953 are shown in Column C. Only earnings below a pin down annual restrict are included. This annual terminus ad quem of included wages is called the ” Contribution and Benefit Base “ and is shown as Max Earnings in Column H in the table .

Adjust for Inflation

Social Security uses a process called “ wage index ” to determine how to adjust your earnings history for ostentation. Each year, Social Security publishes the national average wages for the year. You can see this published list on the National Average Wage Index page .

Your wages are indexed to the average wages for the year you turn 60. For each year, you take the average wages of your indexing year ( which is the year you turn 60 ) divided by average wages for the years you are indexing, and multiply your include earnings by that number .


  • In the table below, see actual wages of $21,000 for 1984 in Column C.
  • In column D are the average wages according to the National Wage Index.
  • Take $44,888.16, which is the average income for the year this person turned 60 (2013), divided by $16,135, to get the Index Factor you see in Column E.
  • Multiply 1984’s earnings by this index factor to get $58,423, which you see in Column F.

Because of how the engage indexing formula works, if you are not yet senesce 62, your calculation to determine how much Social Security you will get is only an calculate. Until you know the average wages for the year you turn 60, there is no means to do an demand calculation. however, you could attribute an assume inflation rate to average wages to estimate the average wages going forward, and use those to create an estimate .

average the Highest 35 Years

The Social Security benefits calculation uses your highest 35 years of earnings to calculate your average monthly earnings. If you do not have 35 years of earnings, a zero will be used in the calculation, which will lower the average. In the table below, the highest 35 years are listed in Column G .

total the highest 35 years of index earnings, and divide that total by 420, which is the number of months in a 35-year work history, to find the Average Indexed Monthly Earnings.

For our case actor, who was born in 1953 and turned 60 in 2013, the highest 35 years of wages total $ 1,919,040. Divide by 420 to get an AIME of $ 4,569 .

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