As you begin to plan for retirement, you must have a reasonable estimate of your monthly retirement benefits from Social Security. This monthly benefit amount significantly influences your monthly budget and might determine whether you can retire or need to keep working for a few more years.
Many people ask, “How is Social Security calculated?” The calculation is somewhat complex, but we will walk you through the details of how to perform the calculation on your own. We will also point you toward an easy benefit calculator that removes all the guesswork. Let’s get started!
How To Calculate Social Security Benefits
Are you wondering, “How much Social Security will I get?” The Social Security Administration (SSA) uses a formula to calculate your benefit amount; anyone can calculate their benefit payments using this formula. Here is how you can determine how much you will receive each month from the SSA.
Step 1: Calculate Your AIME
The calculation starts by determining your average indexed monthly earnings, or AIME. To get this number, you will need access to your lifetime earnings history. The most accessible place to obtain your earnings record is your Social Security statement, which is available through your My Social Security account.
Next, you must index each year’s earnings to current values. This step accounts for inflation, and the SSA publishes indexing factors you must use to perform the indexing process.
For example, earning $100,000 in 2015 might get indexed to $110,000 in current value. Next, you will take the highest 35 years of earnings. If you worked less than 35 years, you would need to use a zero for years without earnings. For example, if you only worked for 30 years, you will use a zero for five years of earnings.
Once you get your highest 35 years of earnings, you can add them together and divide them by 420. This provides you with your average indexed monthly earnings. Now, it is time to move to the next step.
Step 2: Apply Bend Points
Applying the Social Security bend points to your AIME will tell you your primary insurance amount (PIA). The PIA is the amount you will receive if you start your benefits at full retirement age (FRA). For 2024, the bend point calculation is done by calculating the sum of the following:
- 90% of the first $1,174 of your average indexed monthly earnings, plus
- 32% of your average indexed monthly earnings over $1,174 and through $7,078, plus
- 15% of your average indexed monthly earnings over $7,078.
Once you get your primary insurance amount, you will need to adjust that amount based on your retirement age.
Step 3: Adjust For Retirement Age
Your retirement income from Social Security is greatly affected by when you decide to start your benefits. Starting your benefits immediately upon reaching full retirement age will allow you to receive 100% of your primary insurance amount.
However, taking early retirement will reduce your benefits. Your monthly Social Security retirement benefits will be reduced by almost 1% each month you start early. For example, starting your benefits one year early will lead to approximately a 10% reduction in your payment amount.
Conversely, waiting past the full retirement age to start your benefits will lead to increased payments. You can accrue delayed retirement credits by waiting until later to start your benefits. Your monthly payment will increase by about 1% each month you wait. Your retirement benefit will max out as soon as you reach 70 years old, so there is no need to wait longer than this to start your benefits.
KEY TAKEAWAYS
- The three primary steps to calculate Social Security retirement benefits are 1) Calculate your AIME, 2) Apply Bend Points, and 3) Adjust for Retirement Age.
- There are tools available to make estimating your Social Security benefits easier. The tool in your my Social Security account provides the most accurate estimate.
- Your earnings history, retirement age, inflation, and whether you work during retirement all impact your Social Security benefits.
Easy Social Security Benefit Calculator
The calculation described above might seem overwhelming. Thankfully, there is a much easier way to estimate your benefit payments! Several online calculators allow you to calculate your benefit payment, but you need to feed lots of information into those systems. You need to provide your date of birth, retirement date, earnings history, and other information to get an accurate calculation.
However, the Social Security Administration has its own benefit estimator tools. Since the SSA already has access to all your personal information, you only tell the tool when you plan to retire. Once you provide a date, the tool will give you an estimate of your monthly benefit payments.
If you do not wish to create an account with the SSA, you can also use their Social Security quick calculator tool. You must enter your current earnings, date of birth, and retirement date into the tool. Remember that your future benefits could change if you change your retirement date, and they could also change based on future cost-of-living adjustments. The SSA’s Social Security calculator tool is the quickest and easiest way to get an accurate retirement benefit estimate.
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Factors Affecting Your Social Security Retirement Income
Most people want their Social Security payments to be as high as possible, but many people do not understand the factors that affect the amount of their payments. These are the things that affect how much your payment will be each month:
Earnings History
The amount of money you earn while working significantly impacts your Social Security payments. Think about how Social Security works. You must pay Social Security taxes into the system to qualify for benefits, and the more taxes you pay, the more you will receive during retirement. If you are self-employed, you must pay your Social Security taxes on all your earnings to receive the highest benefit possible when you retire.
Retirement Age
Your eligibility to receive Social Security usually starts at age 62, but your retirement age significantly impacts your monthly benefit. Starting your benefits before you reach full retirement age can dramatically reduce the amount you receive each month, and this reduction will last for the rest of your life.
When performing retirement planning, you might decide to delay your retirement. This delay can lead to an increase in your Social Security benefits, and you will continue to receive the increased amount for the rest of your life. The reduction or increase in payments will depend on the number of months you started your benefits early or late.
Inflation
Inflation increases the cost of goods and services, so your Social Security checks don’t go as far each month. However, the Social Security Administration performs an annual cost-of-living adjustment to adjust your monthly benefits for inflation. The SSA uses the consumer price index to gauge inflation, and benefit payments to all recipients are adjusted based on inflation. Thankfully, benefit payments are never lowered due to the cost-of-living adjustment. If there is no inflation, payments will remain the same.
Working During Retirement
If you continue to work after starting your Social Security benefits, you might negatively affect your monthly benefits. Earning too much can reduce your monthly payments, but this reduction only applies before you reach full retirement age.
Once you hit FRA, you will receive the full benefits regardless of how much money you earn from other sources. You should also know that your Social Security payments might become taxable based on your total income, and this rule applies regardless of your age.
TIP
To receive the maximum Social Security retirement benefit, you must earn the earnings limit (or more) for 35 years and delay receiving benefits until age 70.
Maximum Social Security Payment Amount
Now that you know the factors that affect your monthly payment, you might wonder about the maximum benefit amount you can receive. In 2024, the maximum Social Security benefit you can receive monthly is $4,873. This benefit amount assumes that you had an annual income of at least the Social Security earnings limit for 35 years or more and that you waited until age 70 to start your benefits. If you meet both criteria, you can expect to receive the maximum monthly payment from Social Security.
Few people achieve the maximum benefit since the average wage in America is well below the Social Security earnings limits. For this reason, you must have other retirement savings as well. Most people choose to use an IRA or 401k to help save for retirement. If you start your benefits at full retirement age or even later, surviving on Social Security alone will be challenging.
Calculating Other Social Security Benefits
Even if you don’t have a work record, you might qualify for benefits based on the work record of your spouse or other family members. So, how much can you expect to receive from different types of benefits? Here is how to calculate those amounts.
Social Security Disability Benefits
If you are approved for disability benefits, you can receive a monthly payment as long as the disability continues. The formula for disability benefits is not as straightforward as retirement benefits. However, disability payments are still based on your average indexed monthly earnings. The more money you have paid into the system and the longer you have paid, the more money you can receive in monthly benefits.
Spousal Benefits
Spousal benefits are relatively easy to calculate. If you start spousal benefits at full retirement age, you will receive 50% of your spouse’s primary insurance amount. Starting spousal benefits early will lead to a reduction in payments. Remember that you can also receive spousal benefits based on the work record of an ex-spouse, and your ex-spouse’s payment will not be affected by you receiving benefits.
Survivor Benefits
Survivor benefits are typically 100% of the deceased spouse’s benefit amount. This means you can receive the same amount your spouse received before they passed away. Remember that you will not be automatically switched from spousal benefits to survivor benefits if your spouse dies. You will need to notify the Social Security Administration of their death. Doing so as soon as possible would be best because you generally cannot get back payment for survivor benefits.
The Bottom Line
Calculating Social Security benefits can be done independently if you follow the formula. You will need access to your earnings history, and you will need to calculate your AIME, apply the bend points, and adjust the amount for your retirement age.
However, using the Social Security benefits estimator tool is much easier. This tool will give you an accurate estimate of your Social Security benefits based on your chosen retirement date.
Frequently Asked Questions
The easiest way to estimate your benefits is to use the Social Security benefits estimator tool through your My Social Security account. You can also perform the calculation manually if you can access your earnings history and the Social Security indexing factors.
So, how much does Social Security pay? The average Social Security payment to retired workers in 2024 is about $1,927 monthly. While the maximum Social Security benefit is $4,873, most workers receive far less than the maximum. For 2025, the maximum benefit increases to $5,108. Now, you can likely see why it is so vital to have other retirement savings and not rely entirely on Social Security.
Your earnings history and retirement age are factors that affect your Social Security calculation. Due to annual cost-of-living adjustments, your payments might also be adjusted for inflation.
Remember that your payments might also be reduced if you work while receiving benefits, although this reduction will end once you reach full retirement age.
You can find a Social Security Administration office near you by using our SSA office locator and searching for your closest location.
