Social Security retirement benefits are calculated using your highest 35 years of indexed earnings, not just your recent income.
The Social Security Administration (SSA) determines your monthly retirement benefit by first calculating your average indexed monthly earnings (AIME) over your highest 35 years of earnings. These earnings are adjusted for inflation to reflect their value over time. Then, a formula is applied to your AIME to arrive at your primary insurance amount (PIA), which is the benefit you would receive if you start claiming at your full retirement age. Finally, your benefit is adjusted based on the age you choose to begin receiving payments.
This information provides a general overview of how Social Security benefits are calculated and does not constitute financial advice.
What happens if I have fewer than 35 years of earnings for Social Security?
If you have fewer than 35 years of earnings reported to Social Security, the SSA will use the years you did work and count any remaining years as zero. These zero-earning years will be included in the calculation of your average indexed monthly earnings (AIME). Consequently, having years with zero earnings will lower your AIME and, therefore, reduce your overall Social Security retirement benefit amount. It is generally beneficial to work for at least 35 years to maximize your benefit.