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.
How does claiming Social Security at different ages impact my monthly benefit?
Claiming Social Security at different ages significantly impacts your monthly benefit. If you claim before your full retirement age (FRA), your benefit is permanently reduced. For each month you claim early, your benefit is reduced by a small percentage. Conversely, if you delay claiming beyond your FRA, up to age 70, your benefit amount increases. This increase is due to delayed retirement credits, which are added to your primary insurance amount for each month you postpone claiming.