MENU
EDU Articles

Learn about investing, trading, retirement, banking, personal finance and more.

Ad is loading...
Help CenterFree ProductsPremium Products
IntroductionMarket AbbreviationsStock Market StatisticsThinking about Your Financial FutureSearch for AdvisorsFinancial CalculatorsFinancial MediaFederal Agencies and Programs
Investment PortfoliosModern Portfolio TheoriesInvestment StrategyPractical Portfolio Management InfoDiversificationRatingsActivities AbroadTrading Markets
Investment Terminology and InstrumentsBasicsInvestment TerminologyTradingBondsMutual FundsExchange Traded Funds (ETF)StocksAnnuities
Technical Analysis and TradingAnalysis BasicsTechnical IndicatorsTrading ModelsPatternsTrading OptionsTrading ForexTrading CommoditiesSpeculative Investments
Cryptocurrencies and BlockchainBlockchainBitcoinEthereumLitecoinRippleTaxes and Regulation
RetirementSocial Security BenefitsLong-Term Care InsuranceGeneral Retirement InfoHealth InsuranceMedicare and MedicaidLife InsuranceWills and Trusts
Retirement Accounts401(k) and 403(b) PlansIndividual Retirement Accounts (IRA)SEP and SIMPLE IRAsKeogh PlansMoney Purchase/Profit Sharing PlansSelf-Employed 401(k)s and 457sPension Plan RulesCash-Balance PlansThrift Savings Plans and 529 Plans and ESA
Personal FinancePersonal BankingPersonal DebtHome RelatedTax FormsSmall BusinessIncomeInvestmentsIRS Rules and PublicationsPersonal LifeMortgage
Corporate BasicsBasicsCorporate StructureCorporate FundamentalsCorporate DebtRisksEconomicsCorporate AccountingDividendsEarnings

How are Social Security Benefits Computed?

Social Security retirement benefits are computed by finding the average monthly income of a worker during the highest-earning 35 years of employment, and then it plugs that amount into a formula for to determine their full benefit at Normal Retirement Age (NRA).

A person may then choose to take benefits before or after NRA, with applicable reductions or additions. There are different equations for spousal benefits, survivor’s benefits, and maximum family benefits.

Benefits for a worker, his or her spouse(s), dependents, and survivors are computed using different calculations which are stipulated by law. A worker’s benefits are computed by first finding the average monthly income from their highest earning 35 years. This is known as AIME for Average Indexed Monthly Earnings, since the official equation indexes for inflation.

This is plugged into an equation to determine the Primary Insurance Amount (PIA), which is the benefit available to someone at Normal Retirement age. There are tables which can help a person determine how much of a reduction there would be to their benefits if they started claiming benefits before NRA, or how much their benefits would increase if they deferred them past NRA.

Similar considerations apply to spousal and dependent benefits, which can be claimed while the primary working spouse is alive, and there are tables to determine the maximum household benefit which can be claimed at any one time. The maximum amount must also be considered with regards to survivors’ benefits if the primary working spouse dies.

How are My Retirement Benefits Computed?
What Kinds of Social Security Benefits Exist?

Ad is loading...