How are Social Security Benefits Calculated?

How is Social Security Calculated How is Social Security Calculated

Social Security Benefits Calculation Overview

The exact Social Security benefits for retirees depend on several factors. Social Security benefits are usually calculated by summarizing a person’s 35 years of indexed earnings, called AIME (Average Indexed Monthly Earnings). The PIA (Primary Insurance Amount) is calculated with a formula applied to this average earning. This gives the actual Social Security benefits that the person is eligible for.

According to sources, the average monthly Social Security benefits for retirees is around USD 1,833. Retired dependent spouses are entitled to an average of USD 898, while disabled workers are eligible to receive around USD 1,483 per month. Additionally, a widow is entitled to receive around USD 1,711, while a surviving child dependent will receive up to USD 1,070 per month as Social Security benefits.

Social Security benefits are among the major sources of income for the growing retired population in the United States. Almost every American contributes to the Social Security Administration, which assures a string of benefits on retirement from active employment.

If you are wondering how social security is calculated, then this article will help. Here, we have detailed the simple formula to calculate your Social Security benefits after retirement.

Formula to Calculate Social Security Benefits in 2023

This is the latest formula that the federal government used in 2023 to calculate Social Security benefits for people born after 1960:

  • Take the first USD 1,115 of the AIME and multiply it by 90%
  • Choose any amount between USD 1,115 and USD 6,721 and multiply it by 32%
  • Select any amount over USD 6,721 and multiply it by 15%
  • Take the total from the above three steps and round it to the nearest USD 0.10

Steps to Calculate Social Security Benefits

A simple way to know how much your Social Security checks will be worth at a certain age you can use the information from your Social Security account on the SSA website.

However, if you want to learn how exactly the SSA calculates Social Security benefits, you need to follow these steps:

1 – Find your wages during employment

The SSA monitors the income you have earned and the portion from it you contribute towards Social Security taxes each year. My Social Security account on the SSA website will give you this amount.

Mostly, the actual income and the Social Security taxes paid on the income are the same. However, this might change with higher-earning individuals.

For instance, in 2022, you only needed to pay Social Security taxes on the first USD 147,000 earned in the year. But in 2023, the maximum taxable income was raised to USD 160,200. So, don’t be surprised if your earnings for 2022 show your income as USD 147,000, even if you earned more.

2 – Adjust wages for inflation

The AWI (Average Wage Index) is used to correct wages according to inflation. This allows the government to accurately calculate the years you earn more income. The SSA website gives a list of AWI for all years up to 1951.

The AWI used to adjust wages is always the one in effect when you turn 60 years old. You need to divide this AWI by the AWI for the year in question. This gives your index factor. Now, multiply this index factor by your income, and you will get accurate index-adjusted wages.

If this seems difficult, you can simply use the AWI calculator provided at the SSA website here and find your adjusted wages as per inflation.

3 – Figure out your AIME

Once you have adjusted income for inflation, you can calculate the total income from the past 35 years of earnings. If you have not worked for 35 years, then you can simply total the income from all the years you have been employed. This needs to be divided by the number of months you have worked (420 months in 35 years), and you will get the AIME.

Though the AIME may seem lower than you expected, you may have to factor in the durations when you have no income.

4 – Use the formula for Social Security benefits

The next step after getting your AIME is to use the Social Security benefits formula described earlier. Just make sure to use the formula prescribed for your age. To do this, you need to use the formula that was in effect the year you turned 62. This is applicable even if you did not sign up for benefits at that age.

The total from this formula gives your PIA. This is also the benefit amount you will receive if you sign up at your FRA. On the other hand, if you sign up after or before your FRA (Full Retirement Age), then you need to follow the additional steps to calculate your Social Security benefits on retirement.

5 – Adjust PIA as required

For this, you will need to know your FRA. Here’s an example:

  • 1943 to 1954 = 66 months
  • 1955 = 66 + 2 months
  • 1956 = 66 + 4 months
  • 1957 = 66 + 6 months
  • 1958 = 66 + 8 months
  • 1959 = 66 + 10 months
  • 1960 and over = 67 months

So, if you claim your Social Security benefits early, then your benefits will be reduced by:

  • 5/9th of 1% per month for a maximum of 36 months
  • 5/12th of 1% for extra months (if claimed before 36 months)

6 – Calculate the exact Social Security benefits amount

The last step is to round your total to the nearest dollar. This gives you the exact take-home benefits from your Social Security plan.


The Social Security Administration (SSA) calculates total benefits using a special formula. This involves entering your total earnings, the age you apply for benefits, taxes paid towards Social Security, etc. You can find your wages during the employment period, adjust for inflation and use the formula to calculate exactly how much benefits you will receive from your Social Security account upon retirement.

See Also

How to Check Social Security Status?

Financial Help for Seniors on Social Security

What is Social Security Disability?

Health Insurance Without SSN

I am a dedicated healthcare researcher and an enthusiast specializing in medical grants, medical education and research. Through my articles, I aim to empower healthcare professionals and researchers with valuable insights and resources to navigate these critical aspects effectively.

Having sharpened her skills as a validation manager in the fast-paced world of Cybersecurity over a decade, Andrea now applies her expertise to raise the standards of the fact-checking space. As a meticulous fact-checker, she diligently validates the claims presented in our articles, leaving no room for misinformation or ambiguity.

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