Social Security benefits are calculated using a formula that takes into account the average indexed monthly earnings (AIME) of the worker, the number of years of covered earnings, and the age at which the worker begins receiving benefits.
First, the Social Security Administration (SSA) indexes a worker’s past earnings to account for inflation. Then, the SSA takes the worker’s highest 35 years of indexed earnings and calculates the average monthly indexed earnings (AIME).
Next, the SSA applies a formula to the AIME to determine the primary insurance amount (PIA), which is the amount the worker is entitled to receive at full retirement age. The PIA is based on a progressive benefit formula that replaces a higher percentage of pre-retirement earnings for workers with lower lifetime earnings.
Finally, the worker’s actual benefit amount is calculated based on the age at which they begin receiving benefits. If they begin receiving benefits before their full retirement age, their benefit amount is reduced, and if they delay receiving benefits until after their full retirement age, their benefit amount is increased.
What Is the Average Social Security Benefit
As of January 2021, the average monthly Social Security benefit for retired workers in the United States was $1,543. However, the actual benefit amount you may receive depends on several factors, including your lifetime earnings history, the age at which you start receiving benefits, and whether you have any other sources of income in retirement.
