Blog Posts, Social Security

How Is Social Security Calculated?

It can be hard to predict how much you will receive from Social Security, especially if you are more than a few years away from retirement. By familiarizing yourself with how your benefit will be calculated, you can learn how to budget for retirement and even boost your future Social Security payments.

Your social security benefit is based on your lifetime earnings. The Social Security Administration (SSA) adjusts your lifetime earnings to “account for changes in average wages since the year the earnings were received.” Meaning that while your earnings may have increased over your career, the money you earn this year may not be one of your highest earnings years after indexing. This is what the SSA refers to as your indexed earnings.

Is Social Security based on the last 5 years of work?

Your base benefit is calculated by the Social Security Administration based on your highest 35 years of earnings, and earnings before your 60th birthday are indexed for inflation. For instance, if you worked 40 years, Social Security would use your highest-paid 35 years in its calculations and ignore the other five. If you worked only 25 years, Social Security would consider those 25 years and factor in an additional 10 years as zeros.

Social Security uses a formula to arrive at your basic benefit, also called your “primary insurance amount.” This is how much you would receive at your full retirement age. Your social security full retirement age is dependent on your date of birth and used by the SSA simply to calculate your benefit.

How much will I get in Social Security when I retire?

The average Social Security retirement benefit paid to a retired worker is $1,503 per month as of January 2020. The maximum benefit for someone who retires at full retirement age is $3,011 in 2020.  This amount increases to $3,790 for someone who waits to file until age 70.[1]

What are the Factors That Could Change your Benefit Amount?

You can receive benefits before your full retirement age, as early as 62, but this will reduce your benefits. In contrast, the longer you wait, up to age 70, the higher your monthly benefit will be. Your monthly benefits are reduced permanently if you start them any time before full retirement age. For more information on your full retirement age, please click here.

How much will I get in Social Security if I have a pension?

If you are a government worker with a pension for which you didn’t pay into social security, the SSA will use an alternative formula for your benefit. Please use the Social Security Administration’s Windfall Elimination Provision Calculator to estimate your benefit.

The Social Security Administration recommends you create a social security account as soon as possible, to help prevent fraud.


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