How is Social Security calculated?

Key points

• Social Security adjusts your earnings before the year you turn 60 for the growth in national average wages, takes your highest 35 years, and divides the total by 420 months. The result, rounded down to the dollar, is your average indexed monthly earnings (AIME).
• A formula turns the AIME into your primary insurance amount (PIA): 90% of the first $1,340, 32% of the amount above that up to $8,077, and 15% of the rest, for people who turn 62 in 2027. For 2026 the dollar amounts are $1,286 and $7,749. The year you turn 62 sets them, not the year you claim.
• The PIA is rounded down to the dime and rises with every cost-of-living adjustment (COLA) from the year you turn 62, whether or not you have claimed. It is what you get at full retirement age.
• Claiming earlier cuts the PIA (to 70% at 62 when full retirement age is 67) and waiting raises it (to 124% at 70). The monthly payment is then rounded down to the whole dollar.

This guide follows one worker through every step, using the example the Social Security Administration (SSA) publishes for people retiring in 2027, so each figure can be checked against SSA’s own page. For the program as a whole, start with our Social Security guide.

These are federal rules for a retirement benefit on your own work record. We checked every rule and figure against SSA, the Social Security Act and SSA’s regulations on October 27, 2026. The sources are listed at the end.

The Social Security benefit formula in six steps

Step	What SSA does	Rounding
1. Index	Adjusts each year’s earnings to the wage level of the year you turn 60	To the cent
2. Pick 35 years	Keeps your highest 35 indexed years, counting zeros if you have fewer	None
3. Average	Divides the total by 420 months to get the AIME	Down to the dollar
4. Formula	Applies 90%, 32% and 15% at the bend points for the year you turn 62	PIA down to the dime
5. COLAs	Raises the PIA by each COLA from the year you turn 62	Down to the dime each time
6. Claiming age	Reduces the PIA for early claiming or adds delayed credits	Benefit down to the dollar

How does Social Security index your earnings?

Indexing converts past earnings to roughly what they would be worth at wage levels near the time you retire. SSA does it with the national average wage index, a yearly figure for average pay across the country.

Your indexing year is the second year before the year you turn 62, which is the year you turn 60. Each earlier year’s earnings are multiplied by the wage index for your indexing year divided by the wage index for that year. Earnings in your indexing year and later count at face value.

SSA’s example, case A. The worker was born in 1965, so turns 62 in 2027 and has an indexing year of 2025. The wage index for 2025 is 72,800.33 and for 1987 it is 18,426.51.

• 1987 earnings: $17,229
• Indexing factor: 72,800.33 divided by 18,426.51, or 3.9508
• Indexed 1987 earnings: $17,229 times 72,800.33 divided by 18,426.51, or $68,069 in SSA’s table
• Earnings for 2025 and 2026 count as earned, with a factor of 1.

Only earnings up to the year’s taxable maximum count, both for the tax and in the benefit. The cap is $184,500 for 2026 and $192,300 for 2027. Our guide to the maximum Social Security benefit shows what earning at the cap every year produces.

Which 35 years does Social Security use?

SSA counts the years from the year you reach 22 through the year before you reach 62. For a worker with no period of disability, that is 40 years. For a retirement benefit it subtracts 5 from that count, which leaves 35 years.

Those 35 are your highest indexed years, not your last 35. The regulation adds that they “must include years of no earnings if you do not have sufficient years with earnings.” So with only 30 years of earnings, five zeros go into the average.

Case A has earnings in all 40 years from 1987 to 2026. SSA drops the five lowest indexed years, 1987 to 1991, and the highest 35 add up to $2,550,252.

What zeros do. Take the same worker with no earnings at all from 1987 to 1996. Only 30 years of earnings are left, so five years of $0 fill the 35.

Figure	Case A as published	Same worker, 5 zero years
Years with earnings used	35	30
Total of the 35 years	$2,550,252	$2,202,397
AIME	$6,072	$5,243
PIA (2027 formula)	$2,720.20	$2,454.90

Work after 62 counts too. Every year before the year your benefits start can be one of your 35. Earnings in that year and later years can replace a lower year in a recomputation if that raises your PIA.

To see the years and amounts on your own record, a personal “my Social Security” account at ssa.gov/myaccount lets you review your earnings history and estimate benefits at different ages.

What is AIME?

Average indexed monthly earnings is the total of your indexed earnings in those 35 years, divided by the number of months in them (420) and rounded down to the next whole dollar.

For case A: $2,550,252 divided by 420 is $6,072.03, so the AIME is $6,072.

The PIA formula and the 2026 and 2027 bend points

The primary insurance amount is the sum of three slices of your AIME. The dollar amounts where the slices change are called bend points. They rise each year with the national average wage index, and the set that applies to you is the one for the year you turn 62, or become disabled or die before 62.

Year you turn 62	First bend point	Second bend point
2026	$1,286	$7,749
2027	$1,340	$8,077

For 2027 the formula is 90% of the first $1,340 of AIME, plus 32% of the AIME over $1,340 and through $8,077, plus 15% of the AIME over $8,077. SSA derives each bend point from the 1979 amount. For example, $180 times 72,800.33 divided by 9,779.44 (the 1977 wage index) is $1,339.96, which rounds to $1,340.

Worked example. Case A’s AIME of $6,072 under both formulas, and a higher AIME of $10,000 that reaches the 15% slice:

Slice	AIME $6,072, turning 62 in 2026	AIME $6,072, turning 62 in 2027	AIME $10,000, turning 62 in 2027
90% slice	$1,157.40	$1,206.00	$1,206.00
32% slice	$1,531.52	$1,514.24	$2,155.84
15% slice	none	none	$288.45
Total	$2,688.92	$2,720.24	$3,650.29
PIA, down to the dime	$2,688.90	$2,720.20	$3,650.20

The middle column is SSA’s own case A: “.9(1340) +.32(6072 − 1340) = $2,720.24”, and SSA states the PIA as $2,720.20. The 2026 column is the same AIME run through the 2026 bend points, to show how the formula moves from one year to the next.

The three rates explain why Social Security replaces a larger share of pay for lower earners. Every dollar of AIME up to the first bend point adds 90 cents to the PIA. Above the second bend point, a dollar adds 15 cents.

When do cost-of-living adjustments start?

From the year you turn 62. SSA’s booklet on how benefits are figured says you are eligible for COLAs “starting with the year you turn age 62. This is true even if you don’t get benefits until your full retirement age or even age 70.” The regulation says the same: the increases apply to the PIA “beginning with December of the year they become eligible.”

Each increased PIA is rounded down to the dime before the next COLA is applied. SSA’s second example, case B, shows it. The worker was born in 1960, turned 62 in 2022 and earned at or above the taxable maximum every year from 1987 to 2026. The 2022 formula (bend points $1,024 and $6,172) on an AIME of $11,843 gives $3,419.61, or $3,419.60.

COLA (effective December)	Rate	PIA after the COLA
2022	8.7%	$3,717.10
2023	3.2%	$3,836.00
2024	2.5%	$3,931.90
2025	2.8%	$4,041.90
2026	3.6%	$4,187.40

That matches SSA’s published PIA of $4,187.40. SSA’s table labels each COLA by the December it takes effect, so the 3.6% increase listed for 2026 is the one paid from January 2027. Our COLA guide covers how each year’s increase is set.

Case A turns 62 in 2027, so the first COLA that can apply to its PIA is the one effective December 2027. Nothing has been added yet.

How claiming age changes the check

At your full retirement age you receive the PIA, rounded down to the dollar. For anyone born in 1960 or later, that age is 67; our full retirement age guide has the table for other birth years.

• Claiming early cuts the PIA by 5/9 of 1% for each of the first 36 months before full retirement age and 5/12 of 1% for each month beyond 36. At 62 with a full retirement age of 67, that is 60 months and a 30% cut.
• Claiming late adds delayed retirement credits of 2/3 of 1% a month (8% a year) for people born in 1943 or later, until 70. With a full retirement age of 67, that is 124% at 70.

Case A, PIA $2,720.20, full retirement age 67:

Start at	Share of PIA	Monthly benefit
62	70%	$1,904
67 (full retirement age)	100%	$2,720
70	124%	$3,373

SSA’s example takes case A at 62 and reaches the same $1,904. The figures at 67 and 70 are in 2027 dollars: the COLAs from December 2027 onward would be added to the PIA first.

The 62 row assumes the full 60 months of reduction. You have to be 62 for the whole month before a benefit is payable for it, and SSA’s actuaries note that “most early retirees begin at age 62 and 1 month.” That is 59 months early with a full retirement age of 67, or 70.42% of the PIA: $1,915 for case A.

Run case A in our Social Security calculator. It shows $1,904 at 62, $2,720 at 67 and $3,373 at 70, in today’s dollars. Like SSA’s example, it assumes a birthday on the 2nd and starts the check at 62 in the birthday month with the full cut. It adds a note that with any later birthday the first check at 62 is for the following month. Our guides to claiming at 62 and delaying Social Security cover the trade-off.

How rounding works at each step

Amount	Rounded	Rule
Bend points	To the nearest dollar	Social Security Act section 215(a)(1)(B)(iii)
Each year’s indexed earnings	To the nearest cent	20 CFR 404.211(d)(3)
AIME	Down to the dollar	20 CFR 404.211(f)(3)
PIA from the formula	Down to the dime	Section 215(a)(1)(A); 20 CFR 404.212(c)
PIA after each COLA	Down to the dime	Section 215(i)(2)(A)(ii)
Early-claiming reduction	Up to the next dime	20 CFR 404.410(a); SSA’s operations manual, POMS RS 00601.020
Delayed credit increase	Down to the dime	20 CFR 404.313(b)(1)
Monthly benefit	Down to the dollar	Section 215(g); 20 CFR 404.304(f)

Section 215 of the Social Security Act is 42 U.S.C. 415. The amounts are small, but they are why a quick estimate from the formula can be a dollar off SSA’s figure.

Common mistakes when estimating your benefit

• Using the bend points for the year you claim. They come from the year you turn 62. Someone who turned 62 in 2022 and claims in 2027 uses the 2022 formula, then adds the COLAs.
• Averaging your last 35 years, or your raw pay. SSA uses the highest 35 years after indexing.
• Forgetting the zeros. Fewer than 35 years of earnings means zeros in the average, and so does a year missing from your earnings record.
• Assuming COLAs start when you claim. They start in the year you turn 62.
• Counting pay above the taxable maximum. It is not taxed for Social Security and adds nothing to the benefit.
• Still applying the windfall elimination provision. It used to replace the 90% in the formula with as little as 40% for some people with a pension from work not covered by Social Security. The Social Security Fairness Act (Public Law 118-273), signed on January 5, 2025, repealed it for benefits payable for months after December 2023. See our guide to the Social Security Fairness Act.
• Treating the PIA as the check. The check depends on the age you start, and benefits for a spouse, a survivor or the family are figured from the PIA under their own rules. See our guides to spousal benefits and the maximum benefit, which covers the family maximum.

About this guide

Written by the Diversify Guy editorial desk. Diversify Guy is a pen name. It is the byline of our editorial team, not a single individual. We do not publish personal trading records or claim to be your adviser. We tell you where every figure came from so you can check it yourself. How we work and how we get paid.

This guide explains federal Social Security rules. It is not personalized financial, tax or investment advice. Diversify Guy earns affiliate commissions and advertising fees from companies featured elsewhere on the site. This page carries no ads and no affiliate links.

Sources and check dates

All sources were fetched and checked on October 27, 2026.

• SSA, Benefit Calculation Examples for Workers Retiring in 2027 (case A and case B, earnings and indexing): https://www.ssa.gov/oact/progdata/retirebenefit1.html
• SSA, Benefit Calculation Examples for Workers Retiring in 2027 (PIA and benefit): https://www.ssa.gov/oact/progdata/retirebenefit2.html
• SSA, Social Security Benefit Amounts: https://www.ssa.gov/oact/cola/Benefits.html
• SSA, National Average Wage Index (series 1951 to 2025): https://www.ssa.gov/oact/cola/AWI.html
• SSA, Indexing Factors for Earnings: https://www.ssa.gov/oact/cola/awifactors.html
• SSA, Primary Insurance Amount (2027 formula and bend point computation): https://www.ssa.gov/oact/cola/piaformula.html
• SSA, Benefit Formula Bend Points (1979 to 2027): https://www.ssa.gov/oact/cola/bendpoints.html
• SSA, Contribution and Benefit Base: https://www.ssa.gov/oact/cola/cbb.html
• SSA, Cost-of-Living Adjustments (series): https://www.ssa.gov/oact/cola/colaseries.html
• SSA, Latest Cost-of-Living Adjustment: https://www.ssa.gov/oact/cola/latestCOLA.html
• SSA, 2027 COLA Fact Sheet: https://www.ssa.gov/news/en/cola/factsheets/2027.html
• SSA, 2026 COLA Fact Sheet: https://www.ssa.gov/news/en/cola/factsheets/2026.html
• SSA, Your Retirement Benefit: How It’s Determined, Publication No. 05-10070, May 2026: https://www.ssa.gov/pubs/EN-05-10070.pdf
• SSA, Starting Your Retirement Benefits Early: https://www.ssa.gov/benefits/retirement/planner/agereduction.html
• SSA, Delayed Retirement Credits: https://www.ssa.gov/benefits/retirement/planner/delayret.html
• SSA, Effect of Early or Delayed Retirement on Retirement Benefits: https://www.ssa.gov/oact/ProgData/ar_drc.html
• SSA, “my Social Security” account page: https://www.ssa.gov/myaccount/
• Social Security Act section 215, 42 U.S.C. 415 (computation of primary insurance amount), U.S. Code 2024 edition: https://www.govinfo.gov/content/pkg/USCODE-2024-title42/html/USCODE-2024-title42-chap7-subchapII-sec415.htm
• 20 CFR 404.211 (computing average indexed monthly earnings), eCFR, title 20 up to date as of October 23, 2026: https://www.ecfr.gov/current/title-20/section-404.211
• 20 CFR 404.212 (computing the PIA from AIME): https://www.ecfr.gov/current/title-20/section-404.212
• 20 CFR 404.270 and 404.271 (cost-of-living increases): https://www.ecfr.gov/current/title-20/section-404.271
• 20 CFR 404.304 (rounding of monthly benefits): https://www.ecfr.gov/current/title-20/section-404.304
• 20 CFR 404.313 (delayed retirement credits): https://www.ecfr.gov/current/title-20/section-404.313
• 20 CFR 404.410 (reduction for early retirement): https://www.ecfr.gov/current/title-20/section-404.410
• SSA, Program Operations Manual System (POMS) RS 00601.020, Rounding of Benefits (TN 22, effective October 21, 2026): https://secure.ssa.gov/poms.nsf/lnx/0300601020
• SSA, POMS RS 00615.101, Reduced Retirement Benefits: https://secure.ssa.gov/poms.nsf/lnx/0300615101
• SSA Office of the Chief Actuary, Early or Late Retirement? (age 62 and 1 month): https://www.ssa.gov/oact/quickcalc/earlyretire.html
• SSA, POMS RS 00605.360, Windfall Elimination Provision (TN 135): https://secure.ssa.gov/poms.nsf/lnx/0300605360
• Social Security Fairness Act of 2023, Public Law 118-273, approved January 5, 2025: https://www.govinfo.gov/content/pkg/PLAW-118publ273/html/PLAW-118publ273.htm