Social Security calculates your retirement benefit in three distinct steps: (1) average your highest 35 years of earnings into a single monthly figure called the AIME, (2) run that number through a progressive formula using “bend points” to produce your Primary Insurance Amount (PIA), and (3) adjust the PIA up or down based on when you claim relative to your full retirement age. Understanding each step tells you exactly why your benefit is what it is — and what you can do to increase it.
Step 1: Average Indexed Monthly Earnings (AIME)
Your AIME is the monthly average of your 35 highest-earning years, with each year’s wages adjusted (indexed) for wage inflation so that early-career dollars are comparable to recent dollars.
How wage indexing works
The SSA indexes each year’s earnings to your age-60 wage level. Earnings from years before you turned 60 are multiplied by a ratio:
$$\text{Indexed earnings} = \text{Actual earnings} \times \frac{\text{National Average Wage (age-60 year)}}{\text{National Average Wage (earnings year)}}$$
Earnings from age 60 onward are not indexed — they count at their nominal dollar value. This means a dollar earned at 25 is worth much more in AIME terms than its face value suggests, because national wages have grown substantially since then.
The 35-year rule
The SSA selects your 35 highest years of indexed covered earnings. If you worked 40 years, it uses the best 35. If you worked only 30 years, it inserts five zeros. Those zeros drag down your average significantly.
AIME formula:
$$\text{AIME} = \frac{\text{Sum of 35 highest indexed annual earnings}}{420}$$
(420 = 35 years × 12 months)
The 2026 wage base cap
Only earnings up to the Social Security taxable wage base count. The 2026 wage base is $176,100. Earnings above this are not taxed for Social Security and do not count toward your AIME.
| Year | SS Wage Base |
|---|---|
| 2023 | $160,200 |
| 2024 | $168,600 |
| 2025 | $176,100 |
| 2026 | $176,100 |
Step 2: Primary Insurance Amount (PIA) — The Bend Point Formula
Your AIME is fed into a progressive formula that produces your Primary Insurance Amount (PIA) — the benefit you receive if you claim exactly at full retirement age (FRA). The formula has three tiers, each with a different replacement rate. The thresholds between tiers are called bend points.
2026 bend points
| AIME tier | Replacement rate | 2026 bend points |
|---|---|---|
| First $1,226/month | 90% | Up to $1,226 |
| $1,226 to $7,391/month | 32% | $1,226 – $7,391 |
| Above $7,391/month | 15% | Over $7,391 |
Bend points are adjusted annually by the SSA based on the National Average Wage Index. Check ssa.gov/oact/cola/piaformula.html for the most current values.
PIA formula
$$\text{PIA} = (0.90 \times \text{min(AIME, $1,226)}) + (0.32 \times \text{max(0, min(AIME, $7,391) - $1,226)}) + (0.15 \times \text{max(0, AIME - $7,391)})$$
The progressive structure means Social Security replaces a larger share of income for lower earners — a deliberate policy design.
Why bend points matter
| Monthly AIME | PIA at FRA | Replacement rate |
|---|---|---|
| $1,000 | $900 | 90% |
| $2,500 | $1,485 | 59% |
| $5,000 | $2,349 | 47% |
| $7,391 | $3,036 | 41% |
| $10,000 | $3,426 | 34% |
| $14,700 (max) | $4,166 | 28% |
The table shows why high earners who also have a government pension were hit hardest by the WEP — and why the Social Security Fairness Act repeal was so significant for them.
Step 3: Claiming Age Adjustment
Your PIA is what you receive at full retirement age (FRA) — currently 67 for anyone born in 1960 or later. Claiming earlier permanently reduces the benefit; claiming later permanently increases it.
| Claiming age | Adjustment | Monthly benefit as % of PIA |
|---|---|---|
| 62 | −30% | 70% |
| 63 | −25% | 75% |
| 64 | −20% | 80% |
| 65 | −13.3% | 86.7% |
| 66 | −6.7% | 93.3% |
| 67 (FRA) | 0% | 100% |
| 68 | +8% | 108% |
| 69 | +16% | 116% |
| 70 | +24% | 124% |
Each month of delayed claiming earns a Delayed Retirement Credit (DRC) of 2/3 of 1% per month (8% per year) up to age 70. Benefits do not grow further after 70.
See when to claim Social Security for break-even analysis on each claiming age.
Full Worked Example: From Earnings to Monthly Check
Profile: Jordan, born 1959, full retirement age 66 + 10 months, claiming at 67.
Jordan’s 35 highest indexed annual earnings (simplified)
| Career stage | Indexed annual earnings | Years | Total |
|---|---|---|---|
| Early career (age 22–30) | $32,000/yr indexed | 9 | $288,000 |
| Mid-career (age 31–45) | $62,000/yr indexed | 15 | $930,000 |
| Late career (age 46–57) | $85,000/yr indexed | 11 | $935,000 |
| Total (35 years) | 35 | $2,153,000 |
AIME calculation: $$\text{AIME} = \frac{$2{,}153{,}000}{420} = $5{,}126/\text{month}$$
Applying the bend point formula
| Tier | Calculation | Amount |
|---|---|---|
| 90% of first $1,226 | $1,226 × 0.90 | $1,103.40 |
| 32% of $1,226–$5,126 ($3,900) | $3,900 × 0.32 | $1,248.00 |
| 15% above $7,391 | $0 (AIME below second bend point) | $0 |
| PIA at FRA | $2,351.40 |
Rounded to nearest $0.10 per SSA rules.
Claiming age adjustment
Jordan claims at 67 (at FRA) → no adjustment.
Monthly benefit: $2,351
If Jordan had claimed at 62: $2,351 × 0.70 = $1,646/month If Jordan had waited to 70: $2,351 × 1.24 = $2,915/month
How to Increase Your AIME
1. Replace zero years with any earnings
Each zero year inserted for a sub-35-year career has an outsize effect. A worker with only 30 covered years has five zeros pulling down their AIME. Adding just one year of $50,000 in earnings eliminates one zero and raises the AIME by ~$119/month — which translates to roughly a $38/month PIA increase (at the 32% bend point) before claiming-age adjustments.
2. Replace low-earning years
If you worked 35+ years but early years were very low-wage, additional high-earning years swap out those low years automatically. The SSA always picks the best 35.
3. Delay claiming (not the same as increasing AIME)
Delaying claiming does not change your PIA — it changes the multiplier applied to it. These are two separate levers. Working longer can raise your AIME and earn you Delayed Retirement Credits if you also defer claiming.
4. Check for missing or incorrect earnings
Errors in your Social Security earnings record are more common than most people think — especially for self-employed workers, people who changed names, or those who had employers misreport wages. Review your record at my Social Security and request corrections for any discrepancies. Errors more than three years old are harder to correct.
What Counts as Covered Earnings
Wages from most private-sector and federal (post-1983) jobs are covered. Some earnings do not count toward your AIME:
| Earnings type | Counts toward AIME? |
|---|---|
| Private sector wages | Yes |
| Federal workers (FERS, post-1984) | Yes |
| Self-employment income (Schedule SE) | Yes (net SE income × 92.35%) |
| State/local gov workers (varies by state) | Depends on pension system |
| Federal CSRS workers (pre-1984) | No — not SS-covered |
| Railroad retirement | No — separate system |
| Earnings above wage base ($176,100 in 2026) | No |
| Investment income, dividends, rental income | No |
Self-employed workers pay both halves of the 15.3% FICA tax, but the 7.65% employer-side is deductible — see Social Security for the self-employed for the full calculation.
Checking Your Own Earnings Record
The SSA provides a free online tool showing your entire earnings history and a benefit estimate at each claiming age.
Steps:
- Go to ssa.gov/myaccount and create or log in to your my Social Security account
- Navigate to “Earnings Record” — review every year for accuracy
- Under “Benefits” → “Retirement,” see estimated monthly amounts at 62, FRA, and 70
- The estimates assume you keep earning at your current rate until claiming — actual benefit may differ if you stop working early
Note: The SSA’s online estimate uses nominal (non-indexed) earnings for future years and applies current-law bend points. For a more precise figure, the Social Security calculator article walks through additional estimation tools.
For more on Social Security strategy and timing, see when to claim Social Security, maximum Social Security benefit, and the full Social Security hub.
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