The Social Security Benefit Calculation Explained
Determining your Social Security benefit is not as simple as taking a percentage of your current salary. The Social Security Administration (SSA) calculates your benefit using a multi-step process based on your lifetime earnings.
Average Indexed Monthly Earnings (AIME)
First, the SSA calculates your Average Indexed Monthly Earnings (AIME) by indexing your past earnings to account for changes in general wage levels. The SSA takes your 35 highest-earning years and averages them. If you have fewer than 35 years of work history, the missing years are counted as zeros, which can lower your average. For a consistent $100,000 earner (in indexed dollars) retiring in 2025, this would translate to an AIME of around $8,333.33.
Primary Insurance Amount (PIA)
Next, the AIME is used to determine your Primary Insurance Amount (PIA). The PIA is the monthly benefit you receive if you claim at your Full Retirement Age (FRA). The formula is progressive, applying different percentage rates to specific segments of your AIME. These segments are defined by 'bend points' that are adjusted annually.
For someone turning 62 in 2025, the bend points are set at $1,226 and $7,391. The formula works as follows:
- 90% of the first $1,226 of AIME
- 32% of AIME between $1,226 and $7,391
- 15% of AIME over $7,391
Using these 2025 bend points, a person with an AIME of $8,333.33 (reflecting a consistent $100,000 average income) would have a PIA calculated as follows:
- 0.90 * $1,226 = $1,103.40
- 0.32 * ($7,391 - $1,226) = $1,972.80
- 0.15 * ($8,333.33 - $7,391) = $141.35
Adding these up gives a PIA of approximately $3,217.55 per month at Full Retirement Age.
Impact of Your Claiming Age: A High-Earner's Choices
Your monthly benefit is not static; it changes significantly based on when you choose to begin collecting. For a worker whose Full Retirement Age (FRA) is 67, here’s a comparison.
| Claiming Age | Monthly Benefit (Est.) | Impact on PIA |
|---|---|---|
| 62 | ~$2,252 | Reduced by 30% |
| 67 (FRA) | ~$3,217 | 100% of PIA |
| 70 | ~$4,118 | Increased by 24% |
Note: These are estimates based on a consistent $100,000 indexed income for an individual with an FRA of 67. Actual amounts depend on specific earnings history.
- Claiming Early (Age 62): Starting benefits as early as 62 results in a permanent reduction. For someone with an FRA of 67, this can mean a 30% lower monthly check for life.
- Claiming at Full Retirement Age (FRA): Waiting until your FRA nets you 100% of your calculated PIA. The FRA is 67 for anyone born in 1960 or later.
- Claiming Late (Age 70): For every year you delay claiming past your FRA, up to age 70, you earn Delayed Retirement Credits. These credits increase your monthly benefit by 8% per year. Delaying to age 70 can result in a significant boost to your monthly check and increase your lifetime benefits, especially if you have a longer life expectancy.
How Working in Retirement Affects Your Benefits
If you continue to work after you begin collecting Social Security, especially before your FRA, your benefits could be temporarily reduced.
- Before FRA: For 2025, the earnings limit for those under FRA is $23,400. If you earn more, your benefits are reduced by $1 for every $2 over the limit. A $100,000 earner would likely see their benefits reduced to zero until reaching FRA.
- Year of FRA: In the year you reach FRA, the earnings limit increases significantly ($62,160 in 2025), and the reduction is $1 for every $3 earned over the limit, until the month you reach FRA.
- At or After FRA: Once you reach FRA, there is no longer any earnings limit. You can continue to work and earn any amount without impacting your monthly Social Security benefit.
Understanding the Role of COLAs
Once you begin receiving Social Security benefits, they are subject to annual Cost-of-Living Adjustments (COLAs) to help benefits keep pace with inflation. The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). For 2025, the COLA was 2.5%. This annual adjustment ensures the purchasing power of your benefit is protected over time.
Conclusion: Planning Is Key to Maximizing Your Benefit
For a $100,000 earner, your Social Security benefit is not a simple calculation. It depends on a 35-year earning history, and more importantly, your claiming strategy. While a consistent earner can expect a robust benefit at FRA, the difference between claiming early at 62 and delaying to 70 can be thousands of dollars per year. High earners should not rely on Social Security alone but use it as a foundational component of a comprehensive retirement plan.
To get a personalized estimate based on your specific earnings record and explore different claiming scenarios, you can use the official tools provided by the SSA. You can create or log in to a SSA's my Social Security account for a detailed look at your projected benefits.
