6 Surprising Things That Impact How Much Social Security You Get

As the name implies, Social Security has long-been a fiscal safety net for older Americans. Even if you have a large nest egg, this monthly benefit offers an excellent way to stretch your retirement dollars further.

But do you know how your benefits are calculated? Here are some key factors that determine the size of your Social Security check.

Social Security benefits are calculated using average indexed monthly earnings (AIME), which is an average of up to 35 years of your indexed earnings.

The Social Security Administration (SSA) calculates the primary insurance amount (PIA) using a formula that applies to the average to determine benefits. This formula adjusts to reflect changes in general wage levels.

To qualify for Social Security benefits, you have to earn 40 credits.

As of 2024, you get a credit for every $1,730 in wages or self-employment income you earn, with a maximum of four credits per year. This means that $6,920 in annual income is required for the full four credits, which can be earned at any point during the tax year.

Earning 40 credits typically requires 10 years of qualifying income, although these years do not need to be consecutive. Self-employed individuals can also meet this requirement through their business earnings.

Social Security benefits are determined based on up to 35 years of your earnings. The years with the highest earnings are added together, and the total is divided by the number of months in all those years.

The result of these calculations is your average indexed monthly earnings, or AIME.

To calculate a worker’s primary insurance amount (PIA), three separate percentages of portions of the AIME are added together.

Dollar amounts in this formula change annually as the national average wage index changes. Such dollar amounts are known as “bend points.”

Deciding when to start Social Security benefits can be challenging. Each person will have their own reasons for deciding when to apply for the program.

You can file for benefits at age 62, but the earlier you enroll, the lower your monthly payout will be. You will get a bigger payout if you wait until full retirement age — 67 for those born during or after 1960 — to claim, and an even larger check if you wait until age 70.

Many factors determine when people decide to enroll, including current cash needs, health and family longevity, work plans, and whether a retiree has other income sources.

Weigh these factors carefully to make the best decision for your situation. This choice affects your monthly benefit for life.

COLA is not a fun, fizzy drink: It’s shorthand for Social Security’s annual cost-of-living adjustment.

Each year, Social Security benefits are increased to help prevent the program’s enrollees from falling behind financially due to inflation. The COLA is pegged to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Benefits increase if the CPI-W rises by at least 0.1% from one year to the next.

Recently, the federal government announced that millions of people enrolled in Social Security and Supplemental Security Income will see a 2.5% bump in their monthly benefits in 2025.

Social Security is a financial lifeline for millions of Americans in retirement. As long as you work enough years to qualify, you will benefit from this program later in life.

The more you understand Social Security and how benefits are calculated, the better position you will be in to maximize your retirement savings.