How Is Social Security Calculated?
Social Security figures your retirement benefit in three steps. It adjusts each year of your earnings for wage growth, averages your highest 35 years into a monthly figure called your average indexed monthly earnings (AIME), and runs that average through a formula that pays 90%, 32% and 15% of different slices of it. The result is your primary insurance amount (PIA), the benefit you’d get at full retirement age. Your claiming age then raises or lowers it.
For people turning 62 in 2026, the formula’s dividing lines, called bend points, are $1,286 and $7,749. For people turning 62 in 2027, they’re $1,340 and $8,077. Because of the formula, lower earners get back a much larger share of their earnings than higher earners.
Step 1: Your earnings are indexed for wage growth
Social Security doesn’t use your earnings as they were. It raises each past year’s earnings to reflect how much average wages have grown since then, so a $20,000 salary in 1990 counts for far more than $20,000.
The indexing factor for each year is the national average wage for the year you turn 60, divided by the average wage for that earlier year. Earnings at 60 and later aren’t indexed; they count at face value. That’s why a year from decades ago can count for more than a recent year with a bigger paycheck.
Only earnings up to the taxable maximum count, the same cap used for Social Security tax: $184,500 in 2026 and $192,300 in 2027. Earnings above it are neither taxed nor used in your benefit.
Step 2: Your highest 35 years are averaged
Social Security takes your 35 highest indexed years, adds them up and divides by 420, the number of months in 35 years. That monthly average is your AIME.
If you worked fewer than 35 years, the missing years count as zeros. Someone with 30 years of earnings has five zeros in the average, which pulls the AIME down. Every extra year of work replaces a zero or a lower year, but once you have 35 good years, another year only helps if it beats the lowest one already counted. The highest 35 years rule is also why stopping work early can lower your benefit even if you wait to claim.
You need 40 work credits, about 10 years of work, to qualify for retirement benefits at all. Qualifying and the amount are separate: 10 years qualifies you, but the benefit is still figured over 35 years.
Step 3: The formula turns your AIME into a benefit
The benefit formula pays a percentage of each slice of your AIME:
| Year you turn 62 | 90% of AIME up to | 32% of AIME between | 15% of AIME above |
|---|---|---|---|
| 2025 | $1,226 | $1,226 and $7,391 | $7,391 |
| 2026 | $1,286 | $1,286 and $7,749 | $7,749 |
| 2027 | $1,340 | $1,340 and $8,077 | $8,077 |
Swipe sideways to see the full table →
The bend points rise every year with average wages, and the set that applies to you is locked in by the year you turn 62, even if you claim later. The total is rounded down to the next lower dime; that’s your PIA.
The formula works like tax brackets in reverse. The first slice of your average is replaced at 90%, the next at 32% and the rest at only 15%. For someone turning 62 in 2026:
| AIME | PIA at full retirement age | Share of AIME replaced |
|---|---|---|
| $2,000 | $1,385.80 | 69% |
| $5,000 | $2,345.80 | 47% |
| $10,000 | $3,563.20 | 36% |
Swipe sideways to see the full table →
A higher earner still gets a bigger check, but each extra dollar of average earnings above the second bend point adds only 15 cents to the monthly benefit.
Step 4: Cost-of-living increases start at 62
Your PIA gets every cost-of-living increase from the year you turn 62, whether or not you’ve claimed. If you turn 62 in 2026 and wait until 67, your PIA already includes the 2027 increase of 3.6% and every increase after it when you start. You don’t lose the COLAs by waiting.
Step 5: Your claiming age adjusts the benefit
The PIA is what you get at full retirement age, 67 for anyone born in 1960 or later. Starting earlier reduces it, down to 70% at 62; waiting raises it, up to 124% at 70. The monthly amount is then rounded down to the whole dollar.
A full example
Social Security’s actuaries use this case: a worker born in 1965 with steady earnings from 1987 through 2026, retiring in 2027.
- Each year’s earnings are indexed to 2025, the year the worker turned 60.
- The highest 35 indexed years total $2,550,252. Divided by 420 months, the AIME is $6,072.
- With the 2027 bend points: 90% of $1,340 is $1,206, plus 32% of the $4,732 between $1,340 and $6,072 is $1,514.24. The total, $2,720.24, rounds down to a PIA of $2,720.20.
- Starting at 62, which is 60 months before full retirement age, cuts it to 70%: $1,904 a month.
The same worker waiting until 67 would get the $2,720 PIA plus the cost-of-living increases from 2027 on.
After you start: your benefit can still grow
Work after you claim can raise your benefit. Each year, Social Security reviews the earnings of beneficiaries who work, and if your latest year is one of your highest 35, it refigures your benefit and pays the increase back to January of the following year. Earnings from the year you start benefits are picked up this way the next year, so a partial final year isn’t wasted.
Myths about how benefits are figured
- “It’s based on your highest 5 years” or “your best 40 quarters.” It’s your highest 35 years. Forty quarters, or 40 credits, is only what you need to qualify.
- “You get back 90 cents of every dollar you paid in.” The 90% applies to the first slice of your average monthly earnings, not to the taxes you paid.
- “Working longer always raises your benefit.” Only if the new year replaces a lower year in your top 35.
- “COLAs only start once you claim.” They’re added to your PIA from age 62 on.
Where to see your own numbers
Your earnings record and estimates at every age from 62 to 70 are in your my Social Security account. Check the record for missing years: a year shown as zero when you worked lowers your AIME, so report the error to Social Security.