How Social Security Benefits Are Calculated

Social Security Benefits pic

Social Security Benefits

Barry M. Kornfeld is a graduate of American University, where he obtained his bachelor’s degree in finance and accounting. Today, Barry Kornfeld puts his education to use as a financial advisor and principal at First Financial Tax Group, a firm that assists pre and post-retirees in alternative income & growth strategies.

One of the more common financial concerns that the country’s pre-retirement population faces is understanding how Social Security is calculated and identifying the best time to file for it. The amount that an individual receives in Social Security benefits is calculated using several variables. The first variable is the total of the highest earnings that an individual collected over the course of 35 working years, which is then altered to reflect the current economy’s wage growth. That number is then averaged and divided by the number of months worked within 35 years before it becomes an individual’s Average Indexed Monthly Earnings (AIME). The formula is then applied to the AIME to determine the individual’s payable benefits at full retirement age.

Along with total earnings, the time that an individual files for Social Security affects the amount that he or she receives each month. Making a claim before reaching the full retirement age of 66 or 67 can significantly reduce a benefit amount, while waiting to retire until later can increase the size of the check one receives by around eight percent each year until the age of 70.


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