Social Security Benefit program is the largest benefits program in the United States. Knowing the calculation can help you to not only claim your benefits in case of discrepancies, but it can also help you smartly estimate your retirement income. That way if you have a particular goal or a retirement figure in mind, you know how much you have to put aside and how much will you receive as a benefit.

In this article, we will tell how your social security benefits are calculated and how the SSA determines your monthly Social Security check.

The Calculation – Factors and Formulas

We will go with a step-by-step approach of calculation of the Social Security benefits to make it simpler for you to understand. The steps are as under:

  1. Determining the AIME

The first step is to determine the Average Indexed Monthly earnings or the AIME.

To do that, the SSA considers your lifetime earnings through the years you have been working and arrives at maximum taxable earnings.

In AIME calculation, the SSA takes 35 years of working where your earnings were the highest. They add up all the 35 years indexed together and find an average by dividing by 35. The result they obtain is divided by 12 to obtain your AIME.

  1. Calculating PIA

The AIME obtained in step 1 is then used to figure out your Social Security Retirement Benefit which is also known as PIA (Primary Insurance Amount). This is the amount that determines your benefit check at the age you apply for it.


Your PIA is then determined by applying a formula on your AIME. The formula for 2020 is as below:

– 90% of the first $960 of AIME plus

– 32% of AIME over $960 up to $5,785 plus

– 15% of AIME over $5,785

Point to Note: the percentages remain the same but the bend points or the amounts above keep changing every year.

  1. Adding the COLAs

Your PIA is calculated on the basis of the bend points when you turn 62. You can either claim or apply for Social Security benefits at 62 or you can wait until your full retirement age. If you apply at 62, your PIA will be adjusted upward with the cost-of-living adjustments or COLA.

  1. Claiming Social Security early or late

This is also an important factor in determining your social security check. Based on your year of birth, your full age of retirement will vary which as mentioned earlier can be between 66 and 67 years.

However, claiming the benefits at full retirement age increases the benefits of 8% annually (0.67% monthly) up to 70 years of age.

First, the SSA calculates your AIME which is based on your highest incomes in 35 years. Then on the basis of your AIME, they calculate your PIA. Then they apply the COLA adjustments on your PIA depending upon the year you apply for the benefits. And finally, if you start early the benefits reduce at a steady rate but if you start at the full age of retirement you enjoy some increase in your benefit check.

SSA: Social Security Administration

AIME: Average Indexed Monthly Earnings

PIA: Primary Insurance Amount

COLA: Cost of Living Adjustments


So now you know the basics of your social security benefits calculation, make sure you plan for your retirement well in time, for a better quality of life in old age.