How Are Your Social Security Benefits Calculated?

Key Takeaways

• Your earnings are indexed to age 60 using wage indices, then the highest 35 years are averaged by dividing by 420 to get your Average Indexed Monthly Earnings (AIME)—zero-earning years count and reduce your average, so fill gaps if possible
• The Primary Insurance Amount (PIA) uses bend points (2022: $1,024 and $6,172) to replace 90% of earnings up to the first bend point, 32% between bend points, and 15% above—this is your benefit at full retirement age
• Filing before full retirement age reduces benefits by roughly 6-7% per year early (20% reduction at 3 years early); delaying past FRA increases benefits by about 8% per year, so the PIA itself doesn't change, only the multiplier does
• Your Social Security statement shows a gross projection that doesn't account for taxes, Medicare premiums, earnings reductions if claiming before FRA, WEP/GPO reductions, or COLA adjustments—use it as a planning baseline but expect a lower actual check
• You can verify calculations using mySocialSecurity.gov and spreadsheets if comfortable with math, but consider professional software or an advisor since the process involves complex indexing and bend point calculations