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.
Earn cash back on everyday purchases with this rare account
Want to earn cash back on your everyday purchases without using a credit card? With the Discover®️ Cashback Debit Checking account (member FDIC), you can earn 1% cash back on up to $3,000 in debit card purchases each month!1 <p>See website for details.</p>
With no credit check to apply and no monthly fees to worry about, you can earn nearly passive income on purchases you’re making anyway — up to an extra $360 a year!
This rare checking account has other great perks too, like access to your paycheck up to 2 days early with Early Pay, no minimum deposit or monthly balance requirements, over 60K fee-free ATMs, and the ability to add cash to your account at Walmart stores nationwide.
Don’t leave money on the table — it only takes minutes to apply and it won’t impact your credit score.
Social Security benefits are calculated using average indexed monthly earnings
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.
You need to earn a certain number of credits
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.
Your benefit is calculated on your 35 highest-earning years
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.
Earn $200 cash rewards bonus with this incredible card
There's a credit card that's making waves with its amazing bonus and benefits. The Wells Fargo Active Cash® Card(Rates and fees) has no annual fee and you can earn $200 after spending $500 in purchases in the first 3 months.
The Active Cash Card puts cash back into your wallet. Cardholders can earn unlimited 2% cash rewards on purchases — easy! That's one of the best cash rewards options available.
This card also offers an intro APR of 0% for 12 months from account opening on purchases and qualifying balance transfers (then 19.49%, 24.49%, or 29.49% Variable). Which is great for someone who wants a break from high interest rates, while still earning rewards.
The best part? There's no annual fee.
A formula determines your primary insurance amount
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.”
The age you claim determines how much you get each month
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.
Trending Stories
Your benefit changes yearly based on the COLA
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.
Bottom line
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.
Lucrative, Flat-Rate Cash Rewards
FinanceBuzz writers and editors score cards based on a number of objective features as well as our expert editorial assessment. Our partners do not influence how we rate products.
Wells Fargo Active Cash® Card
Current Offer
$200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual Fee
$0
Rewards Rate
Earn unlimited 2% cash rewards on purchases
Benefits
- Low spend threshold for its welcome offer — $200 cash rewards bonus after spending $500 in purchases in the first 3 months
- Cell phone protection benefit (subject to a $25 deductible)
- Can redeem rewards at an ATM for literal cash
Drawbacks
- Foreign transaction fee of 3%
- No bonus categories
- Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 19.49%, 24.49%, or 29.49% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
- $0 annual fee.
- No categories to track or remember and cash rewards don’t expire as long as your account remains open.
- Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
Subscribe Today
Want extra-cash moves to come right to you?
Stop browsing endlessly. Get proven ways to earn pocket money, help cover rent, and crush your debt — sent to your inbox daily.