Factors That Determine the Amount of Your Social Security Benefits

Understanding what your Social Security benefit is based on can significantly impact your financial planning for retirement. The amount you receive hinges on several factors, including your lifetime earnings, the age at which you start claiming benefits and the number of years you’ve worked. The Social Security Administration (SSA) uses a formula to calculate your benefits, which considers your highest-earning 35 years. Knowing these key determinants can help you maximize your Social Security benefits.

Need help planning for Social Security or creating a retirement income plan? Connect with a fiduciary financial advisor and see how they can help.

What Social Security Benefits Are Based On

Social Security benefits are based on your lifetime earnings and the amount you paid into the system through payroll taxes. Here are the three main factors that determine your benefit amount:

Earnings History

Your earnings history is the primary factor determining your Social Security benefits. The SSA calculates your benefit amount using what’s known as your average indexed monthly earnings (AIME) over your 35 highest-earning years. Higher lifetime earnings result in higher benefits, while lower earnings lead to lower benefits.

Work Duration

The number of years you work significantly impacts your benefits. To qualify for Social Security benefits, you must earn at least 40 credits, equivalent to approximately 10 years of work. If you worked fewer years, zeros will be factored in for the missing years, which can lower your benefit amount. Working beyond 35 years, meanwhile, can potentially increase your benefits if those additional years are higher-earning.

Age at Retirement

The age you choose to begin claiming Social Security benefits directly influences the amount you receive. If you claim benefits at your full retirement age (FRA), which varies based on your birth year, you will receive the full benefit amount. Opting to claim benefits as early as age 62 can reduce your lifetime benefits by up to 30%. Conversely, delaying benefits until age 70 can increase your monthly payments by up to 28%.

Calculating Your Benefit

The SSA uses a formula to convert your AIME into your primary insurance amount (PIA), which is the basis for your benefits. The PIA formula involves applying specific percentages to portions of your AIME, using what are known as “bend points.”

For example, for someone reaching age 62 in 2026, the formula is:

90% of the first $1,286 of your AIME
Plus 32% of AIME between $1,286 and through $7,749
Plus 15% of AIME above $7,749

Consider a hypothetical worker who turns 62 in 2024. Their AIME is calculated to be $5,000. To calculate their PIA, the SSA would apply the following formula:

90% of $1,286: $1,157.40
Plus 32% of the amount between $1,286 and $7,749: $1,229.63
Plus 15% of the amount above $7,749: N/A

The worker’s PIA would then be calculated by adding together the two figures above ($1,157.40 + $1,229.63). As a result, their PIA would be $2,387.03.

Other Factors That Impact Your Benefit

A man calculates his Social Security benefit using the SSA's formula.

Keep in mind that Social Security benefits aren’t fixed, as they’re adjusted for inflation through annual cost-of-living adjustments (COLAs). These annual adjustments help maintain the purchasing power of your benefits by accounting for increases in the cost of living. COLAs are determined based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Marital status and family circumstances can also influence Social Security benefits. Spouses, ex-spouses and dependents may be eligible for benefits based on your earnings record. Spousal benefits can be up to 50% of the worker’s benefit, while family benefits may provide additional support, particularly if the primary earner passes away or becomes disabled.

Meanwhile, a widow or widower can receive up to 100% of the deceased worker’s benefit. And if you were married for at least 10 years, you might be eligible for benefits based on your ex-spouse’s record, provided you remain unmarried.

How to Maximize Your Social Security Benefits

Maximizing your Social Security benefits requires careful planning and a thorough understanding of the factors that influence your payments. By delaying benefits, continuing to work, coordinating with a spouse and understanding tax implications, you can enhance your financial security in retirement. Let’s take a closer look at each.

1. Delay Claiming Benefits

Delaying your Social Security benefits can significantly increase your monthly payments. For each year you delay claiming past your FRA (up to age 70), your benefits increase by approximately 8%. If your PIA is $2,280.90 at age 67 (typical FRA), waiting until age 70 could increase your monthly benefit to around $2,828.

This strategy can be particularly beneficial if you expect to live longer or have other sources of retirement income to cover expenses in the meantime.

2. Continue Working

If you continue to work and earn a higher salary, you can potentially replace lower-earning years in your benefit calculation. This could increase your AIME and, consequently, your PIA.

3. Claim Spousal Benefits

If you’re married, your spouse may be eligible for spousal benefits, which can be up to 50% of your PIA. By coordinating the timing of your benefits with your spouse, you can optimize the total benefits received. If you are divorced but were married for at least 10 years, you may be eligible for benefits depending on your ex-spouse’s record.

4. Understand Tax Implications

Depending on your income, up to 85% of your Social Security benefits may be taxable. Understanding the tax implications and planning accordingly can help you retain more of your benefits. Consider strategies to minimize your taxable income in retirement, such as withdrawing from Roth IRAs or other sources of tax-free income.

How the Earnings Cap Affects Your Benefits

Social Security taxes apply only to earnings up to an annual wage base limit, which is set by the federal government and adjusted periodically for inflation. Income above this threshold is not subject to Social Security payroll tax and does not count toward your benefit calculation.

Because of this cap, earning more than the wage base in a given year does not increase your future Social Security benefit for that excess amount. Only earnings up to the limit are included when the Social Security Administration calculates your average indexed monthly earnings.

The benefit formula is designed to replace a higher percentage of income for lower and middle earners than for higher earners. This progressive structure means that while higher earners receive larger absolute benefits, their benefits replace a smaller share of their pre-retirement income.

For workers who consistently earn at or above the wage base, maximizing benefits often depends more on their claiming age and the number of years worked than on increasing income further. Continuing to work, delaying benefits and avoiding zeros in the 35-year earnings record can still raise monthly payments.

Because earnings above the cap do not boost Social Security benefits, higher-income workers often rely more heavily on personal savings, workplace retirement plans and other investments to fund retirement. Understanding this limitation can help set realistic expectations for future Social Security income.

Bottom Line

A couple examines their Social Security benefits on a laptop.

Understanding how your Social Security benefits are calculated (by factoring in earnings history, work duration and the age at which you claim), you can make informed decisions to maximize your retirement income. By strategically planning when to claim benefits, continuing to work to potentially boost your earnings, coordinating with your spouse and considering tax implications, you can enhance your financial security in retirement.

Social Security Planning Tips

If you’re married or were married, you may be eligible for higher benefits under your spouse’s earnings record than your own. Spousal benefits are worth up to 50% of your spouse’s Social Security payment at their full retirement age. If your spousal benefit is higher than your own retirement benefit, the Social Security Administration will pay out the larger amount, although you’ll need to file for it when your spouse begins collecting their own benefit.
A financial advisor can help you plan for Social Security and make strategic decisions regarding your benefits. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.