Social Security retirement benefits provide financial support to millions of retired workers in the United States. Understanding how your Social Security benefits are calculated can help you plan better for retirement and maximize your benefits. In this article, we will discuss the steps to calculate your Social Security retirement benefits.

Step 1: Determine Your Eligibility

To be eligible for Social Security retirement benefits, you must have earned at least 40 credits or enough wages in covered employment over a period of at least 10 years. You need to earn one credit for each $1,410 of earnings (as of 2020), with a maximum of four credits per year.

Step 2: Calculate Your Average Indexed Monthly Earnings (AIME)

Your Social Security retirement benefit is based on your average indexed monthly earnings (AIME) over your highest-earning 35 years. To find your AIME, follow these steps:

1. List your annual earnings from Social Security-covered employment, starting from the year you first began working.

2. Adjust each year’s earnings for inflation using the national average wage indexing series provided by the Social Security Administration (SSA). This will give you the indexed earnings for each year.

3. Select the highest-earning 35 years and add them together.

4. Divide the total by 420 (35 years x 12 months) to get your AIME.

Step 3: Calculate Your Primary Insurance Amount (PIA)

Your Primary Insurance Amount (PIA) is the amount you will receive as a monthly benefit at full retirement age (FRA), which ranges from age 65 to 67, depending on your birth year. To calculate your PIA:

1. Break down your AIME into three segments using “bend points” determined by the SSA:

– First segment: Up to $960 (as of 2020)

– Second segment: $960 to $5,785 (as of 2020)

– Third segment: Over $5,785 (as of 2020)

2. Calculate the PIA by applying a percentage formula to each segment:

– First segment: 90%

– Second segment: 32%

– Third segment: 15%

3. Add together the amounts from each segment to get your PIA.

Step 4: Consider Your Retirement Age

The age you choose to retire can impact your Social Security retirement benefits. Retiring earlier than FRA will result in a reduction in benefits, while delaying retirement beyond FRA will lead to an increase in benefits. For each year you retire earlier than FRA, your benefits are reduced by approximately 6-7%. For each year you delay retirement beyond FRA, your benefits increase by about 8%.

Conclusion

Calculating your Social Security retirement benefits involves determining your eligibility, calculating your AIME and PIA, and considering the impact of your chosen retirement age. Becoming familiar with these calculations will help you make informed decisions about when and how to claim your benefits for retirement planning.