How to Calculate Social Security Benefits

For most Americans, social security benefits are an important part of their retirement plan. Whether this fund is your primary retirement account or a small portion of what you plan to live on during the later years of life, you need to use calculate social security benefits to find out what amount you can count on each month.

We have tips to help you learn to calculate social security benefits so you can plan for your retirement accordingly.

Average Indexed Monthly Earnings


This figure takes into account the changes to your wages during your working years. The average indexed monthly earnings, also known as AIME, take the highest 35 years of your indexed earnings between the ages of 22 and 62.

The indexing depends on the year that you are first eligible to begin receiving retirement benefits from the Social Security Administration and is indexed to the average wage index for two years prior to that age.

The amount during those 35 years is added up and then divided by 420 to determine your AIME. This is how you calculate social security benefits to know how much your average monthly earnings are.

Primary Insurance Amount


Once you know your AIME, you can further calculate social security benefits by determining your primary insurance amount or PIA. The PIA, also referred to as bend points, ensures that lower wage earners get a higher percentage of their pre-retirement income, while higher wage earners get a lower percentage. You must calculate social security benefits in this manner because the fund was originally created to be a supplement to your retirement fund – not the entire amount you live on during retirement.

In addition to the AIME and PIA, you must calculate social security benefits by the age at which you begin taking your retirement benefits. While you can begin taking retirement benefits at the age of 62, delaying your social security distributions for a time will raise the amount of your monthly payments later on. Some people choose to delay their distributions to ensure they have a sufficient check in the later years to adequately supplement their other retirement funds.

Benefit Calculators


To make it easier to calculate social security benefits, the SSA offers a variety of online benefit calculators you can use for this purpose. The first is the SSA quick calculator, which gives you a fast, rough estimate of how much you will receive in retirement benefits using your date of birth and current year's earnings.

The SSA’s online benefit calculator uses your complete earnings history to get a more accurate estimate of your future retirement benefits. The final benefit calculator, known as the detailed calculator, must be downloaded and installed on your computer, but it offers the most precise estimate of your retirement benefits by far.

Understanding how to calculate social security benefits is an important step in learning how to manage your funds during your retirement years. The amount of your retirement benefits will have a direct impact on your overall quality of life in your later years.
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

Tradingsim.com
Day Trading Simulator

Tradingsim.com provides the ability to simulate day trading 24 hours a day from anywhere in the world. TradingSim provides tick by tick data for...

Send this article to a friend.

Enter multiple addresses on separate lines or separate them with commas.