How Are My Benefits Calculated?

First, be forewarned this is pretty dry material and there aren’t any “easy on the eyes” charts or graphs on this page.

Second, it is important to note you do not have to figure this out yourself! Various tools are available to help you estimate your benefits (including our software as well as the benefits estimator at

However, some people find the formula interesting. For those of you who wish to keep reading…

The exact amount of your Social Security benefit is not computed until you turn 62. At that time, all of your annual earnings are indexed to account for wage inflation. Once each year’s earnings are indexed for inflation, your highest 35 years of earnings are tallied. If you worked more than 35 years, only the highest 35 years will count. If you worked less than 35 years, the missing years will count as zeroes. The 35 years of indexed earnings are totaled and divided by 420 (35 x 12 months) to arrive at your average indexed monthly earnings, or AIME.

Let’s use Boomer Bob as an example. Born in 1952, Bob earned the Social Security maximum throughout his career. The maximum amount of wages subject to the Social Security tax is adjusted each year for inflation (it is $117,000 in 2014). When his earnings are indexed and averaged, his AIME comes out to be $8,890.

If you are still reading this, then this part will REALLY excite you!

A three-part formula is applied to the AIME to arrive at your Primary Insurance Amount, or PIA. Here is how the formula would apply to Boomer Bob:

1. Baby Boomer born in 1952
2. Maximum Social Security earnings every year since age 22
3. Average Indexed Monthly Earnings (AIME) = $8,890

PIA formula:

• $816 x .90 = $734.40
• $4,101 x .32 = $1,312.32 ($4,917 – $816 = $4,101)
• $3,973 x .15 = $595.95 ($8,890 – $4,917 = $3,973)
Total = $2,642.67

Rounding to the next lower dime, Bob’s PIA is $2,642.60. This is the amount he will receive if he applies for benefits at age 66, his full retirement age (FRA)*.

Click here to learn about more about when you should apply for Social Security Benefits! ‎

*This is a hypothetical case study and actual results may vary, as individual circumstances will be different in each case.