Social Security benefits are computed based on a formula that uses a worker's highest 35 years of earnings, which are indexed to account for inflation. Here is how the calculation typically works:
- The Social Security Administration (SSA) identifies the 35 years of a worker's highest earnings, adjusts these earnings for inflation (indexed earnings), and sums them up.
- This sum is divided by 420 (the number of months in 35 years) to find the Average Indexed Monthly Earnings (AIME).
- The AIME is then applied to a formula with "bend points" to calculate the Primary Insurance Amount (PIA), which is the benefit amount the worker would receive at full retirement age.
- The 2025 bend points are:
- 90% of the first $1,226 of AIME,
- 32% of AIME between $1,226 and $7,391,
- 15% of AIME over $7,391.
- The resulting PIA can be adjusted based on the age at which the worker starts receiving benefits (early retirement reduces benefits; delayed retirement increases benefits).
This method ensures that benefits reflect lifetime earnings adjusted for wage growth and inflation, providing a progressive benefit formula favoring lower earners proportionally more.
