How your Social Security benefit is calculated, step by step

Your Social Security retirement benefit is not a guess or a balance in an account. It comes out of a formula, and every step of it is published by the Social Security Administration. Once you know the steps, the number on your statement stops being a mystery, and you can see what working longer, earning more or claiming later would do to it.

This guide walks through the formula in the order Social Security applies it: qualifying with credits, averaging your earnings, the bend point formula, and then the adjustment for the age you start. The figures are for people who turn 62 in 2027, from SSA's actuarial pages.

Step 1: qualify with 40 credits

Before any formula, you need 40 Social Security credits to be eligible for retirement benefits. You earn credits by working and paying Social Security taxes, up to four a year. In 2027 one credit takes $1,970 of covered earnings, so $7,880 earns all four (in 2026 it was $1,890 a credit). Social Security is clear that extra credits beyond 40 do not raise your benefit; your earnings do. More on the credits page.

Step 2: your average indexed monthly earnings

Social Security summarizes your lifetime earnings in one number, your average indexed monthly earnings (AIME). It indexes past earnings, converting them to roughly their value near the time you retire, using the national average wage index. The index for 2025 is 72,800.33.

Only earnings up to the Social Security taxable maximum count, because earnings above it are not taxed for Social Security. That maximum is $192,300 for 2027 (it was $184,500 for 2026). See the Social Security tax limit.

Step 3: the bend point formula

Your primary insurance amount (PIA), the benefit you would get at full retirement age, is the sum of three slices of your AIME. For people first eligible in 2027:

90% of the first $1,340,
plus 32% of the amount over $1,340 and through $8,077,
plus 15% of the amount over $8,077.

The result is rounded down to the next lower multiple of 10 cents. The two dollar amounts are the bend points. They rise each year with the average wage index: for 2027 SSA multiplied the 1979 bend points of $180 and $1,085 by the 2025 index and divided by the 1977 index, giving $1,340 and $8,077.

What the formula gives at different earnings levels

Our arithmetic with the 2027 PIA formula from SSA. Before cost-of-living increases.
AIME	PIA (benefit at full retirement age)	Share of AIME replaced
$2,000	$1,417.20	71%
$4,000	$2,057.20	51%
$6,000	$2,697.20	45%
$8,000	$3,337.20	42%
$10,000	$3,650.20	37%

The table shows why Social Security replaces a larger share of earnings for people with lower lifetime pay. Each dollar of AIME below the first bend point adds 90 cents to the benefit; above the second, each dollar adds only 15 cents. Try your own AIME in the bend point calculator.

A worked example

Take someone who turns 62 in 2027 with an AIME of $6,000. The first slice is 90% of $1,340, which is $1,206.00. The second is 32% of the $4,660 between $1,340 and $6,000, which is $1,491.20. Nothing falls above the second bend point. Added together and rounded down to the dime, the PIA is $2,697.20 a month. Starting at 62 instead would mean $1,888.04; waiting until 70, $3,344.53.

Which year's bend points apply to you

The bend points that count are the ones for the year you turn 62 (or become disabled or die before 62). They are fixed for you from then on, so it matters which column you read:

SSA Office of the Chief Actuary, Benefit Formula Bend Points.
Year you turn 62	First bend point	Second bend point
2027	$1,340	$8,077
2026	$1,286	$7,749
2025	$1,226	$7,391
2024	$1,174	$7,078
2023	$1,115	$6,721

Step 4: the age you start

The PIA is the benefit at full retirement age, which is 67 for anyone born in 1960 or later. Starting earlier reduces it and starting later raises it. SSA's actuaries publish the rates: 5/9 of 1% a month for the first 36 months early, 5/12 of 1% for each month beyond that, and for anyone born in 1943 or later, 2/3 of 1% for each month after full retirement age, up to 70. For someone born in 1960 or later, starting at 62 is a 30% cut, and waiting to 70 adds 24%.

The claiming age guide has the full table from 62 to 70, and the break-even calculator shows when waiting catches up.

Step 5: cost-of-living increases

Once you are receiving benefits, they rise with the yearly cost-of-living adjustment. The 2027 increase is 3.6%. The COLA page has every increase since 1975.

The top of the scale

SSA's example of a worker who earned at or above the taxable maximum every year from age 22 shows the most the formula produces. Retiring in January 2027, that worker would get $3,094 a month at 62, $4,188 at 67 and $5,358 at 70. The maximum benefit page has the details. The average retired worker gets far less: an estimated $2,170 a month after the 2027 increase.

What changes your number, and what does not

Higher earnings raise your AIME, up to the taxable maximum each year.
More credits past 40 do not, by themselves.
Your claiming age changes the monthly amount for life.
Working while collecting can raise the benefit too: Social Security reviews beneficiaries' earnings each year and increases the benefit if a new year is one of the highest.

Where to see your own figures

Social Security points people to their my Social Security account at ssa.gov for their own records and estimates. Because the formula works from the earnings on your record, it is worth making sure that record is complete.