How Are Social Security Benefits Calculated?

How Are Social Security Benefits Calculated?
How your AIME determines your Social Security benefit payment.

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How Are Social Security Benefits Calculated?

How Are Social Security Benefits Calculated?As you make plans for retirement, it’s likely you are wondering how much you will receive in Social Security benefits.

Use this information to help you understand how Social Security benefits are calculated and learn how much retirement income you can expect to receive from Social Security.

Social Security retirement benefits are calculated using a complex formula based on your lifetime earnings.

The Social Security Administration calculates your basic benefit (how much you would receive at your full retirement age) using a worker’s average indexed monthly earnings (AIME), which summarizes up to 35 years of your indexed earnings history. Using earnings for the highest-paying 35 years, these figures are added together and then divided by the number of months in 35 years (35 years x 12 months = 420 months) to arrive at your AIME.

If you do not have 35 years of income history, the Social Security Administration assigns each missing year an income value of $0. The AIME accounts for wages on which FICA taxes have been paid and adds a weighting factor for inflation and cost-of-living increases over those years.

Is There a Maximum Benefit I Can Receive?

 Yes, there is a limit to how much you can receive in Social Security benefits and this limit changes every year. In 2019, the maximum monthly Social Security benefit at full or normal retirement age is $2,861. In 2018, the maximum monthly Social benefit was $2,788.

How Much Retirement Income Can I Expect from Social Security?

The Social Security Administration can’t provide your actual benefit amount until you apply for benefits, however, you can get an estimate of your retirement benefits in advance by using Social Security’s Retirement Estimator Calculator or by calling the Social Security Administration at 1-800-772-1213 (TTY: 1-800-325-0778).

Remember, this is an estimate as your actual benefit amount will vary based on a number of factors, including:

  • How long you work
  • How much you earn each year
  • Cost of living adjustments
  • What age you begin collecting your benefits

Questions? Simply fill out the form on this page to connect with a trained advisor who will help you make the right decisions for your unique situation. As always, our advisors do not charge fees for any of their services. We are here to help.

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