Your monthly Social Security retirement benefit is calculated using your highest 35 years of inflation-adjusted earnings, a specific formula, and your age when you begin receiving benefits.
The Social Security Administration (SSA) determines your retirement benefit by first calculating your average indexed monthly earnings (AIME) over your highest 35 years of earnings. These earnings are adjusted for inflation to reflect their value in today's dollars. Then, a formula is applied to your AIME to arrive at your primary insurance amount (PIA), which is the benefit you would receive at your full retirement age. Finally, your benefit amount is adjusted based on whether you start receiving benefits before, at, or after your full retirement age.
This information provides a general overview of how Social Security retirement benefits are calculated and does not constitute financial advice.
How can I estimate my Social Security benefits if I'm self-employed?
If you are self-employed, you can estimate your Social Security benefits similarly to other workers, but you must account for self-employment taxes. Your net earnings from self-employment are subject to Social Security taxes (up to the annual limit). You can calculate your estimated Social Security benefit by summing your self-employment income over your highest 35 years, indexing it for inflation, and then applying the standard Social Security benefit formula. You can find your past earnings history on your Social Security statement. For future projections, you'll need to estimate your self-employment income.