How are Benefits Calculated?
- First, a worker’s previous earnings are restated in terms of today’s wages to reflect wage growth.
- Second, earnings for the highest 35 years are averaged and divided by the number of months in 35 years to arrive at Average Indexed Monthly Earnings (AIME).
- Third, the Social Security benefit formula is applied to AIME to produce the Primary Insurance Amount (PIA), the benefit payable at Full Retirement Age (FRA).
Work at least 35 years.
If you have less than 35 years of earnings (for example, you were laid off or caring for family members and out of work for three years during your working years), you may want to work enough additional years so you have a full 35 years of earnings. Otherwise, the Social Security Administration will average in zeros for any years less than 35.
The net result? Your Social Security retirement benefit will be lower, due to the zero earning years.