Most people know that some seniors' Social Security checks are larger than others', but if you ask them how benefits are calculated, you probably won't get a clear answer. Some understand that it has to do with your income during your working years, but that's not the only factor in play.
Understanding how the Social Security Administration assigns benefits is essential if you hope to maximize yours. And there's one component in particular that could add hundreds of dollars to your monthly benefit -- or cost you just as much.
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How does the Social Security Administration calculate your benefit?
There are three main parts to the Social Security benefit formula, and each offers an important insight into how you can grow your checks. The first step is calculating your average indexed monthly earnings (AIME). This is your average monthly earnings over your 35 highest-earning years, adjusted for inflation.
Whenever possible, you want to work at least this long. Claiming Social Security when you've worked fewer than 35 years reduces your benefit because the government includes zero-income years in your calculation.
The second part of the Social Security benefit determines your primary insurance amount (PIA). The government calculates this by taking your AIME and plugging it into the Social Security benefit formula created in the year you turn 60. In 2024, that formula looks like this:
- Multiply the first $1,174 of your AIME by 90%.
- Multiply any amount greater than $1,174 up to $7,078 by 32%.
- Multiply any amount greater than $7,078 by 15%.
- Total your results from each step above and round down to the nearest $0.10.
In case you're wondering, benefit formulas for other years are virtually identical except for the two dollar amounts. Those are known as the bend points, and they change annually. Here's a table showing bend points for all previous years.
From this step, we know that increasing your income during your working years can help your Social Security benefit later on. The only people this won't work for are those already paying the maximum income subject to Social Security tax. In 2024, that means earning $168,600 or more.
You must claim Social Security at your full retirement age (FRA) to get your PIA. Your FRA is somewhere between 66 and 67 based on your birth year. But many seniors don't sign up then. So the government runs one more calculation to determine your final benefit.
How does your claiming age affect your Social Security benefit?
The Social Security Administration adjusts your benefit up or down depending on your age at signup. Early claimers lose 5/9 of 1% per month for up to 36 months of early claiming. Those who begin more than three years under their FRA lose 5/12 of 1% per month for each additional month of early claiming.
On the other hand, seniors who delay Social Security past their FRA grow their checks by 2/3 of 1% per month until they reach 70. That's when they qualify for their maximum benefit.
Put another way, the longer you delay Social Security, the more you grow your checks, and over time, your benefit increases faster and faster. The following table shows how much you could increase the average $1,909 Social Security benefit just by waiting to apply for benefits:
|
If You Are This Age |
Checks Grow By This Much |
Delaying Boosts the Average $1,909 Monthly Benefit By This Much |
|---|---|---|
|
62 to 64 |
5/12 of 1% per month (5% annually) |
$7.95 per month ($95.40 annually) |
|
64 to 67 |
5/9 of 1% per month (6.67% annually) |
$10.61 per month ($127.32 annually) |
|
67 to 70 |
2/3 of 1% per month (8% annually) |
$12.72 per month ($152.76 annually) |
Source: Social Security Administration and author's calculations.
So essentially, you could grow the average Social Security check by $95 to $153 by waiting just one year to apply for Social Security. And you may get even more, depending on how your benefit stacks up to the $1,909 average.
Delaying Social Security isn't the best choice for everyone. If you don't expect to live long or you're struggling with your bills on your own, it's often best to begin Social Security earlier. But you could try delaying a couple of months if you prefer to boost your checks a little. Experiment with a few scenarios before deciding what's best for you.
