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 does working past full retirement age affect how Social Security is calculated?
Working past your full retirement age (FRA) does not change the calculation of your primary insurance amount (PIA), which is based on your highest 35 years of indexed earnings. However, it significantly increases your monthly benefit amount. For every month you delay claiming benefits beyond your FRA, up to age 70, you earn delayed retirement credits. These credits add a percentage to your PIA, resulting in a permanently higher monthly payment for the rest of your life. For example, if your FRA is 67, delaying until age 70 could increase your benefit by about 24%.