Social Security calculates your retirement benefit in three main steps: it adjusts your historical earnings for wage growth, averages your highest 35 years of income into a single monthly figure, and then applies a tiered formula that replaces a larger share of lower earnings and a smaller share of higher earnings. The age you start collecting then adjusts that amount up or down. Understanding each step helps you see exactly why your estimated benefit is what it is, and where you might be able to change it.
Step 1: Indexing Your Past Earnings
A dollar earned in 1995 bought more than a dollar earns credit for today if left unadjusted, so Social Security doesn’t simply add up your raw paychecks. Instead, it indexes each year’s earnings to reflect the general rise in wages over your career. The agency uses the National Average Wage Index to do this, multiplying each year’s earnings by the ratio of a recent average wage figure to the average wage in the year you earned the money.
The “recent” figure is always pegged to the average wage two years before you turn 62. If you turn 62 in 2026, your earnings are indexed to the 2024 national average wage of $69,846.57. So if you earned $30,000 in 2000 and the national average wage that year was roughly $32,155, your indexed earnings for 2000 would be $30,000 multiplied by ($69,846.57 / $32,155), which comes out to about $65,170. Earnings from 2024 onward are taken at face value, with no further adjustment.
Only earnings up to the Social Security tax cap count in any given year. For 2026, that cap is $184,500. Anything you earn above that amount isn’t taxed for Social Security and doesn’t factor into your benefit calculation. You pay 6.2% of wages up to that cap, and your employer matches it. Self-employed workers pay the combined 12.4%.
Step 2: Averaging Your Highest 35 Years
After indexing every year of earnings, Social Security selects the 35 highest years and adds them together. It divides that total by 420 (the number of months in 35 years) to produce your Average Indexed Monthly Earnings, commonly called your AIME. This single number represents your career earnings in today’s wage-adjusted dollars, compressed into a monthly average.
If you worked fewer than 35 years, Social Security plugs in a zero for each missing year. Those zeros get averaged in and drag down your AIME significantly. Someone with 30 years of solid earnings and five years of zeros will have a noticeably lower benefit than someone with 35 full years. Even if you do have 35 years on record, some of those may be low-earning years from early in your career. Continuing to work and earn more can push out those weaker years and raise your average.
Step 3: The Benefit Formula
Your AIME feeds into a formula that produces your Primary Insurance Amount, or PIA. This is the monthly benefit you’d receive if you claim at exactly your full retirement age. The formula is progressive, meaning it replaces a higher percentage of income for lower earners and a smaller percentage for higher earners. It works in three tiers separated by dollar thresholds called bend points, which adjust annually.
For someone first eligible in 2026, the formula is:
- 90% of the first $1,286 of AIME
- 32% of AIME between $1,286 and $7,749
- 15% of any AIME above $7,749
To see this in practice, imagine your AIME is $6,000. The first $1,286 generates $1,157.40 (90%). The remaining $4,714 falls in the second tier and generates $1,508.48 (32%). Your PIA would be about $2,665.88 per month. Someone with an AIME of $2,000 would get a PIA of roughly $1,385, replacing a much larger share of their working income. A very high earner whose AIME exceeds $7,749 sees only 15 cents on each additional dollar above that threshold reflected in benefits.
How Your Claiming Age Changes the Amount
The PIA is your benefit at full retirement age, which is 67 for anyone born in 1960 or later. You can claim as early as 62 or as late as 70, and either choice permanently adjusts your monthly check.
Claiming before full retirement age reduces your benefit. The reduction is 5/9 of 1% for each of the first 36 months you claim early, and 5/12 of 1% for each additional month beyond that. If your full retirement age is 67 and you claim at 62 (60 months early), the math works out to a 30% permanent reduction. On a $2,000 PIA, that cuts your monthly check to about $1,400.
Waiting past full retirement age earns delayed retirement credits of 8% per year (2/3 of 1% per month) up to age 70. Three years of delay from 67 to 70 boost your benefit by 24%. That same $2,000 PIA would grow to $2,480 per month. After 70, no further credits accrue, so there’s no financial reason to delay past that point.
A Quick Example, Start to Finish
Say you worked steadily for 38 years, and after indexing, your 35 highest annual earnings total $2,100,000. Dividing by 420 months gives an AIME of $5,000. Running that through the 2026 formula: 90% of $1,286 ($1,157.40) plus 32% of $3,714 ($1,188.48) equals a PIA of about $2,345.88. If you claim at 67, that’s your monthly benefit. Claim at 62 and it drops to roughly $1,642. Wait until 70 and it rises to about $2,909.
What Can Actually Raise Your Benefit
Since the formula draws from your top 35 years, the most direct way to increase your benefit is to keep working if your current salary is higher than what you earned in earlier years. Each high-earning year that replaces a lower one (or a zero) pushes your AIME up. Earning at or above the taxable maximum for 35 years produces the highest possible AIME.
Delaying your claim is the other major lever. Every year you wait between 62 and 70 either removes an early-filing penalty or adds delayed retirement credits. For many people, the difference between claiming at 62 and claiming at 70 is roughly 76% more income per month, though the trade-off is fewer total years of collecting checks.
Your annual Social Security statement, available online through a my Social Security account at ssa.gov, shows your recorded earnings year by year and your projected benefit at 62, full retirement age, and 70. Reviewing it lets you spot errors in your earnings record and see exactly how the numbers shake out for your situation.