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.
What is the formula for calculating Social Security benefits for disability?
The Social Security Administration calculates disability benefits using a formula similar to retirement benefits, but it is based on your earnings record up to the point of disability. Your average indexed monthly earnings (AIME) are calculated based on your highest 35 years of earnings, just like for retirement. However, if you become disabled before age 31, a special rule called the 'disability minimum' may apply, which can result in a higher benefit if you have a shorter work history. The formula uses your AIME to determine your primary insurance amount (PIA), which is then adjusted based on your age at disability onset and whether you are receiving other benefits.