Social Security calculates your retirement benefit by averaging your highest-earning 35 years of work, adjusting those earnings for wage growth over time, and then applying a formula that replaces a larger share of income for lower earners than for higher earners. The final number you actually receive depends on the age you start collecting. Here’s how each step works.
Step 1: Your Earnings Are Indexed for Inflation
A dollar earned in 1990 isn’t worth the same as a dollar earned today, so Social Security adjusts your past earnings upward to reflect wage growth across the economy. This process is called wage indexing, and it keeps your early career earnings from dragging down your average unfairly.
The adjustment is tied to the year you turn 62, regardless of when you actually file for benefits. Your earnings from each prior year are multiplied by a ratio: the national average wage index from two years before you turn 62, divided by the average wage index from the year you originally earned the money. Earnings from the year you turn 60 onward are counted at face value with no adjustment. For someone turning 62 in 2026, all past earnings are indexed to the 2024 national average wage of $69,846.57. So if you earned $30,000 in a year when the national average wage was $25,000, your indexed earnings for that year would be $30,000 × ($69,846.57 ÷ $25,000), or about $83,816.
Step 2: Your 35 Highest Years Are Averaged
Once all your earnings have been indexed, Social Security selects the 35 years with the highest indexed amounts. It adds those 35 years of earnings together and divides by 420 (the number of months in 35 years). The result is your Average Indexed Monthly Earnings, or AIME. Think of it as your inflation-adjusted career average monthly pay.
If you worked fewer than 35 years, the missing years are filled in with zeros. That can significantly lower your AIME. Someone with 30 years of solid earnings and five years of zeros is effectively averaging in 60 months of nothing. Each additional year of work that replaces a zero year (or a low-earning year) raises your AIME and, with it, your benefit.
There’s also a ceiling on how much any single year can count. For 2026, only the first $184,500 in earnings is subject to Social Security taxes, and that same cap applies to the benefit calculation. Anything you earn above that amount in a given year doesn’t increase your future benefit.
Step 3: The Benefit Formula Converts AIME to a Monthly Amount
Social Security uses a three-tier formula to turn your AIME into your Primary Insurance Amount, or PIA. The PIA 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 earnings for people who earned less over their careers.
For someone who turns 62 in 2026, the formula works like this:
- 90% of the first $1,286 of AIME
- 32% of AIME between $1,286 and $7,749
- 15% of any AIME above $7,749
The dollar thresholds where the percentages change ($1,286 and $7,749 for 2026) are called bend points, and they’re updated each year based on national wage growth. The percentages themselves (90%, 32%, 15%) never change.
To see this in action, suppose your AIME is $6,000. Your PIA would be: 90% × $1,286 = $1,157.40, plus 32% × ($6,000 − $1,286) = $1,508.48. That totals $2,665.88 per month at full retirement age, before rounding. Social Security rounds the PIA down to the next lower dime.
Someone with a much higher AIME of $10,000 would also get that same $1,157.40 and $1,508.48, plus 15% × ($10,000 − $7,749) = $337.65, for a PIA of about $3,003.53. Notice how the top bracket replaces only 15 cents of every additional dollar of average earnings. Higher lifetime earnings still produce a larger benefit, but with diminishing returns.
Step 4: Your Claiming Age Adjusts the Amount
The PIA is what you’d receive at full retirement age, which is 67 for anyone born in 1960 or later. Claiming earlier or later changes your monthly check permanently.
Claiming Before Full Retirement Age
You can start benefits as early as 62, but each month you claim before 67 reduces your benefit. For the first 36 months early, the reduction is 5/9 of 1% per month. For any months beyond 36, the reduction is 5/12 of 1% per month. If you claim at exactly 62 with a full retirement age of 67, that’s 60 months early, and your benefit is reduced by 30%. On a PIA of $2,000, you’d receive $1,400 per month instead.
Delaying Past Full Retirement Age
For every month you delay past full retirement age up to age 70, you earn delayed retirement credits. For anyone born in 1943 or later, those credits add 8% per year (two-thirds of 1% per month). Waiting from 67 to 70 adds 24%, turning a $2,000 PIA into $2,480 per month. There’s no benefit to waiting past 70 because credits stop accumulating.
These adjustments are permanent. A reduced benefit from claiming at 62 stays reduced for the rest of your life, and a boosted benefit from delaying to 70 stays boosted. Cost-of-living adjustments are applied on top of whatever your adjusted amount is, so the gap between an early and a late claimer grows in dollar terms over time.
What Counts as Earnings
Only earnings that had Social Security taxes withheld count toward your benefit calculation. For employees, that’s your W-2 wages up to the annual taxable maximum. For self-employed workers, it’s your net self-employment income after the deductible portion of self-employment tax. Income from investments, pensions, rental properties, and other non-wage sources doesn’t factor in.
You need at least 40 work credits to qualify for retirement benefits at all. You can earn up to four credits per year, so the minimum is roughly 10 years of covered work. Earning credits gets you in the door, but the size of your benefit depends entirely on how much you earned and over how many years.
How to Check Your Own Numbers
Social Security provides a free online tool called my Social Security at ssa.gov where you can view your earnings record year by year and get benefit estimates at ages 62, 67, and 70. It’s worth checking your earnings history for accuracy, since a missing or incorrect year of earnings could lower your future benefit. You can correct errors by providing W-2s or tax returns to your local Social Security office.
The SSA also offers a more detailed calculator (the Detailed Calculator) that lets you project future earnings scenarios, though it requires downloading software. For most people, the online my Social Security estimates are specific enough to plan around.