Overview: This is the heart of Social Security for most clients — how much they'll receive, and when the decision to claim permanently changes that amount.

Step 1: Average Indexed Monthly Earnings (AIME)

A worker's retirement benefit begins with their Average Indexed Monthly Earnings (AIME), computed as follows:

The SSA selects the worker's 35 highest-earning years from their entire career. If fewer than 35 years have covered earnings, zeros are averaged in for the missing years — a feature that significantly lowers benefits for workers with gaps in employment.
Indexing: Earnings from years before age 60 are multiplied by a factor that adjusts them to reflect national wage growth up to the year the worker turns 60. This prevents early-career wages from being compared to current wages in raw nominal terms.
The 35 years of indexed earnings are summed and divided by 420 (the number of months in 35 years). The result, rounded down to the nearest dollar, is the AIME.

Step 2: Primary Insurance Amount (PIA) — The Bend Point Formula

The Primary Insurance Amount (PIA) is the monthly benefit payable at Full Retirement Age. It is calculated by applying a three-tier progressive formula to the AIME. The dollar thresholds separating the tiers are called bend points, updated annually to reflect wage growth.

For workers becoming eligible (turning 62) in 2026, the formula is:

Tier	Portion of AIME	Replacement Rate
First	Up to $1,286	90%
Second	$1,286 to $7,749	32%
Third	Over $7,749	15%

Why is the formula progressive? The system deliberately replaces a much higher proportion of low earners' income (90 cents on the dollar up to the first bend point) than high earners' income (only 15 cents on the dollar above the second bend point). This design reflects Social Security's dual mission: social insurance with an equity component.

Worked Example — AIME of $5,825:

Tier 1: $1,286 × 90% = $1,157.40
Tier 2: ($5,825 − $1,286) × 32% = $4,539 × 32% = $1,452.48
Tier 3: $0 (AIME is below the second bend point)
Sum: $2,609.88 → truncated to the next lower dime → PIA = $2,609.80

This worker's full retirement age benefit would be approximately $2,609 per month (the PIA is further rounded down to the nearest dollar when paid).

Step 3: Full Retirement Age and Claiming Adjustments

Full Retirement Age (FRA) is the age at which the worker receives 100% of their PIA. FRA varies by birth year:

Birth Year	Full Retirement Age
1943–1954	66
1955	66 and 2 months
1956	66 and 4 months
1957	66 and 6 months
1958	66 and 8 months
1959	66 and 10 months
1960 or later	67

Claiming before or after FRA permanently adjusts the monthly benefit:

Early claiming (as young as 62): The benefit is permanently reduced by:

5/9 of 1% per month for the first 36 months before FRA
5/12 of 1% per month for each additional month before FRA (months 37–60)

For someone with an FRA of 67 claiming at 62 (60 months early):

First 36 months: 36 × (5/9)% = 20% reduction
Next 24 months: 24 × (5/12)% = 10% reduction
Total: 30% permanent reduction → receives 70% of PIA

Delayed claiming (up to age 70): The benefit grows by 8% per year (2/3 of 1% per month) for every year past FRA, up to age 70. Delaying from FRA 67 to age 70 adds 24%, meaning the worker receives 124% of PIA. No credits accrue after age 70.

Summary Table — Worker with $2,000 PIA, FRA of 67:

Claiming Age	Adjustment	Monthly Benefit	% of PIA
62	−30%	$1,400	70%
65	−13.33%	$1,733	86.67%
67 (FRA)	None	$2,000	100%
70	+24%	$2,480	124%

The Break-Even Analysis

Claiming early pays more months but smaller checks; claiming late pays fewer months but larger ones. For a worker choosing between age 62 and age 67:

Claiming at 62 generates $84,000 in benefits over 60 months before the first check would arrive at 67
The $600 monthly advantage of waiting pays back that head start in about 140 months (roughly age 78–79)
If the worker lives past approximately age 79, they collect more total lifetime dollars by waiting to FRA

These break-even calculations do not account for cost-of-living adjustments (COLAs), which are applied annually and compound on a higher base the longer the worker waits.

The Retirement Earnings Test

Workers who claim before FRA and continue working face the Retirement Earnings Test (RET), which temporarily withholds benefits when earnings exceed annual limits. In 2026:

Under FRA all year: $1 withheld for every $2 earned above $24,480
In the year of reaching FRA: $1 withheld for every $3 earned above $65,160 (only for months before the birthday month)
At or after FRA: No earnings limit at all

Critically, withheld benefits are not permanently lost. When the worker reaches FRA, the SSA recalculates the benefit upward to credit back the months in which benefits were withheld. The RET is a temporary cash-flow effect, not a permanent penalty.

FAQ

What happens if I worked fewer than 35 years?
The SSA averages in $0 for each missing year, which lowers the AIME and therefore the PIA. A worker with 30 years of earnings has five years of zeros factored in. This particularly affects workers who take long career breaks.

Can I work and still receive full retirement benefits?
If you have reached your FRA, yes — you can earn any amount without any reduction. If you are under FRA, the Retirement Earnings Test may temporarily reduce your checks.

If I claim early and later regret it, can I undo it?
Within 12 months of first claiming, you may withdraw your application (once per lifetime), repay all benefits received, and restart as if you had never claimed. After FRA, you may also suspend benefits (without repaying) and earn delayed retirement credits going forward.