How Your Social Security Benefits Are Calculated

If you’ve ever glanced at your Social Security statement and wondered how they came up with those numbers, you’re not alone. Social Security benefits aren’t just pulled out of thin air—they’re based on a specific formula that considers your work history, income, and the age you decide to retire or file for disability. It may seem confusing, but once you understand the steps, it’s much easier to see how your benefit amount is determined—and what you can do to increase it.

This guide walks you through how Social Security calculates your retirement and disability benefits using simple, clear language so you can make sense of it all.

You Need to Earn Work Credits First

Before anything can be calculated, you need to qualify for Social Security benefits. For retirement, that usually means earning 40 work credits over your career. You can earn up to four credits per year, so it takes about 10 years of work to qualify.

Disability benefits have slightly different requirements. The number of credits you need depends on how old you were when you became disabled. Younger workers need fewer credits since they haven’t had as much time to build up work history. You can learn more about how to qualify for Social Security Disability by checking out our guide on Social Security Disability secrets.

SSI, or Supplemental Security Income, is a completely different program. It’s based on financial need, not work history. You don’t need any work credits to qualify for SSI, but the way benefits are calculated is entirely separate and isn’t covered in this article. If you want us to cover SSI calculations in detail, let us know—we’re happy to make that guide for you.

Indexing Your Past Earnings

When the Social Security Administration (SSA) starts calculating your benefit amount, they don’t just look at the dollar amounts you earned in the past. Instead, they “index” your earnings to reflect today’s wages.

That means if you earned $20,000 in 1980, the SSA adjusts that number to reflect what $20,000 would be worth today. This makes sure your benefits are fair, no matter when you earned your income.

Finding Your Highest-Earning Years

After indexing, the SSA looks at your 35 highest-earning years. These are the years where your income was highest after indexing. If you worked fewer than 35 years, the missing years are filled in with zeroes, which can lower your average and reduce your benefits.

Even part-time work can help improve your benefit amount if it replaces a zero year. This is why staying in the workforce—even part-time—can make a real difference.

For disability and survivor benefits, the SSA usually looks at fewer years. If you became disabled before working 35 years, they only count the years between age 22 and the year you became disabled. They also disregard up to five of your lowest-earning years to give you a better average.

Calculating Your Average Indexed Monthly Earnings (AIME)

Once your top years are selected, the SSA adds them up and divides the total by the number of months in those years. If you have 35 years of earnings, that’s 420 months. The result is called your Average Indexed Monthly Earnings, or AIME.

For example, if your indexed total earnings are $1 million over 35 years, your AIME would be about $2,380.

Determining Your Primary Insurance Amount (PIA)

Your Primary Insurance Amount (PIA) is what you’ll receive if you retire at your full retirement age. This amount is based on your AIME, but it’s not a simple flat percentage. Instead, the SSA uses a tiered formula with what’s called bend points. These bend points ensure that people with lower lifetime earnings get a higher percentage of their income replaced.

Here’s how the PIA calculation works in 2025:

• You get 90% of the first $1,226 of your AIME.
• You get 32% of the amount between $1,226 and $7,391.
• You get 15% of any amount above $7,391.

Using our $2,380 example AIME, your PIA would come out to around $1,472 per month at full retirement age.

How Timing Affects Your Benefits

Your PIA is what you’d receive if you wait until your full retirement age—which falls somewhere between age 65 and 67 depending on your birth year. But you don’t have to wait that long to claim benefits.

You can start receiving Social Security retirement benefits as early as age 62, but doing so comes with a permanent reduction. Typically, you’ll receive about 30% less than you would have at your full retirement age. This reduction doesn’t go away once you reach full retirement age—it’s permanent.

On the other hand, if you delay claiming your benefits past full retirement age, you can increase your monthly payment. You’ll get an extra boost—up to 8% more per year—until you reach age 70. After that, no additional increases are available for waiting.

In our example:

• At 62, you’d get about $1,030 per month.
• At full retirement age (67), you’d receive $1,472.
• At 70, you’d receive approximately $1,850 per month.

That’s an $800 difference depending on when you start collecting—so it’s worth taking the time to decide what’s right for your situation.

How Disability Benefits Are Calculated

If you’re applying for Social Security Disability Insurance (SSDI), your benefit is calculated using the same formula as retirement benefits. However, instead of using 35 years of earnings, the SSA calculates the number of years between age 22 and the year you became disabled, then subtracts 1 to 5 of your lowest-earning years.

Once that average is determined, your benefit amount is based on your full PIA, just as if you had reached retirement age.

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Relief Recap

Social Security benefits are based on your work history, income, and when you decide to file. The SSA calculates your benefit by indexing your past earnings, selecting your highest earning years, and applying a formula that adjusts for early or delayed retirement. If you’re filing for disability, the process is similar but based on a shorter work history.

Knowing how your benefits are calculated helps you make better decisions about when to retire or file for disability. Whether you’re years away from retiring or thinking about applying soon, having a clear picture of how it all works can make a big difference.