Key Points
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Your AIME is the most important factor in determining how much you’ll receive each month.
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Understanding how benefits are calculated will help you make informed choices.
If you’re like most retirees and counting on Social Security to help you make ends meet as a senior, you need to understand how your benefits are calculated.
There’s one key detail that determines how big your benefits will be. Here is the most crucial number to know if you want an accurate picture of what Social Security will do for you.
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The key detail that determines the size of your Social Security check
The biggest factor in determining how much your Social Security will be is your Average Indexed Monthly Earnings (AIME).
To calculate your AIME, the Social Security Administration:
- “Indexes” your earnings to reflect wage growth. Essentially, this means adjusting the average wages you earned over your career to account for the effects of wage growth.
- Calculates your average monthly earnings over the 35 years when your earnings were highest. If you worked less than 35 years, this formula still doesn’t change. You just have years of $0 wages included. The Social Security Administration adds up your indexed earnings, then divides the total amount by the total number of months in those years.
The number is then adjusted, rounded down, and that’s your AIME. Only income up to the “wage base” limit counts, though. That’s the maximum amount of income subject to Social Security tax each year.
Once you hit the wage base limit, you no longer pay Social Security tax on extra earnings, and extra earnings aren’t factored into your benefit calculation.
How is your AIME used?
Once the Social Security Administration has calculated your AIME, the next step in the benefits formula is to give you benefits equal to a percentage of it. The specific percentage is based on how much you earned.
Social Security has “bend points” that determine the percentage of your AIME counted in your benefits. The bend points are typically set based on the year you turn 62, unless you die or become disabled before then.
For example, if you turn 62 in 2026, here’s what this would look like:
|
AIME
|
Percentage of AIME Paid as Benefit
|
|---|---|
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$0 to $1,286
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90%
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$1,287 to $7,749
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32%
|
|
$7,750 and up
|
15%
|
Data source: Social Security Administration.
So if your AIME was $5,000, your standard Social Security benefit available at your full retirement age would be 90% of the first $1,286 of your AIME, plus 32% of the amount between $1,286 and $5,000.
You get your primary insurance amount if you claim Social Security at full retirement age, but this benefit can shrink or grow if you start Social Security either before or after FRA.
Still, while age plays a role, your AIME is the most important factor in determining how much you’ll receive each month in retirement benefits.
The more you earn up to the wage base limit, the higher your AIME, and the bigger your monthly Social Security income will be.
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