How SS (Social Security) Calculates Retirement Benefits

By Alan Silverstein, Fort Collins, Colorado. Email me at ajs@frii.com.
Last updated December 19, 2025 #2

How does Social Security in the USA actually calculate monthly basic retirement benefits? The math is surprisingly complex, and was not well documented in any single place I could find, which is why I created this webpage.

But beware: "When you look into an abyss, the abyss also looks into you." -- Friedrich Nietzsche (grin, thanks Tom)

Very briefly there are two parts:

1. Calculate AIME (Average Indexed Monthly Earnings) => PIA (Primary Insurance Amount) at FRA (Full Retirement Age).

2. Multiply by a personal constant factor set by the timing of when you claim benefits (before, at, or after FRA), apply COLA (Cost Of Living Adjustments) every year to increase your PIA, and then adjust for Medicare premiums (in a weird way, see below).

Less briefly but still terse and fuzzy (full details later):

1. Multiply FICA-taxed annual earnings by birth-year-specific inflation factors; add 35 resulting highest years; divide sum by 35 * 12 = 420 for AIME; truncate ("round down") to whole dollar; apply AIME to 3 brackets/tiers (90%, 40%, 15%) with "bend points" (dollar breakpoints) depending on birth year; add amounts for each tier; truncate ("round down") total to nearest dime => PIA at FRA.

2. Multiply initial PIA at FRA by a timing factor (such as 1.0 for claiming to start in your FRA month, < 1.0 for earlier, > 1.0 for later); truncate to dime; after FRA year (whether already claiming or not), multiply PIA by COLA for each year, and again truncate to dime each year; subtract Medicare premium amount (also multiple of a dime); truncate to whole dollar; add back premium amount => gross monthly benefit (before mandatory Medicare deduction if enrolled, and any optional tax withholding).

Some context before the detailed explanation:

I found it impossible to get SS to provide me my own calculations, other than confirming my SS-taxed (FICA, Federal Insurance Contributions Act) earnings history and my PIA at FRA (also available through website). So I built my own Excel spreadsheet to model this, recreating the FRA PIA amount they gave me based on their hidden calculations (also for my wife and a few other relatives).

Unfortunately this spreadsheet is so personalized that it's hard to share -- including annual earning amounts, birth-year-specific inflation indexes and PIA bend points, FRA timing (also depends on birth year), and annual COLAs starting in the first year applicable.

Later I discovered that while I nailed the first part (PIAs), I had erroneous math on the second part (timing factor, COLAs, and Medicare premiums). I had to study further (piecemeal info from various sources) and revise the spreadsheet to exactly match actual benefits my wife (claiming ahead of me) was already receiving.

The hairy details ("once more, with feeling"):

First to get your AIME and PIA:

• Take your personal earnings history every year -- the amount that was subject to FICA taxation, through employer W2 or Schedule C self-employment -- but possibly capped in any year if you were lucky enough to hit the annual limit, which changed almost every year. (You get no SS credit for excess untaxed earnings.)

• Apply annual inflation factors based upon your birth year, really the year you turn 60. (Same for everyone that year, per a wonky model I won't elaborate, that can screw people born in certain years.) Probably you can find them here as Indexing Factors for Earnings.

  Note that the inflation factor is 1.0 for every year after age 60.

• Add your highest 35 years of indexed earnings; compute your AIME for those 35 years by dividing the total by 35 * 12 = 420.

  Note that you can improve your AIME, even after claiming, by continuing to pay enough FICA in any given year (with taxable earnings) to "bump" your lowest-of-35 year off the list and replace it with a higher one. But inflation factors going decades back boost older earnings amounts more than you might expect (like a factor of 6 for me), making your least-of-best-35 indexed year have a higher amount than the raw number from back then, hence harder to "bump" with a new number.

  Also note that with "known" historical annual FICA caps and inflation factors, there's a maximum AIME, hence PIA, possible for anyone today within a reasonable age range (based on their first earnings year).

• Compute PIA at FRA (age 65-67 depending on birth year, now 67.0 for anyone born in or after 1960) based on AIME versus 3 brackets: 90%, 40%, and 15% credits, using two dollar "bend point" numbers whose values depend on your year first eligible, when turning 62 (hence your birth year). Probably you can find the bend points here as Benefit Formula Bend Points. Add the contribution from each tier.

  Note that this rewards lower income earners more than higher ones. If you have enough AIME, your "highest dollars taxed" only count 15% (in the top tier) toward your PIA. This is one reason why even working longer late in life and replacing a lower (indexed) earnings year with a higher one might not make a huge difference (just 15% of the new year's earnings) to your PIA and monthly benefit.

• Truncate ("round down") your PIA to a whole dime. (Excel: "=ROUNDDOWN(x,1)")

Now to compute your actual monthly benefit payment based on your PIA and when you start/claim:

• If you don't start/claim exactly in your FRA month, multiply your COLA-adjusted PIA by a personal "factor": A discount (for starting before) or a bonus (for starting after), and again truncate to a dime. You can read more about that in my analysis here: Social Security Discounts and Break Even Ages.

  For example, my wife's FRA PIA was multiplied by 1 + (0.08 annual bonus for deferring / 12 months * 7 months past FRA) = 1.04666...

• Late every year an SS COLA is declared for the next year (based on CPI-W not CPI-E, but that's a different debate), exact to 1/10% (no hidden digits); such as 2.8% for 2026. (You can find SS COLA history here as Cost-Of-Living Adjustments.) Multiply your adjusted PIA by the COLA for each successive year, but each year truncate the result to a dime before doing anything else with it, like proceeding to the next year -- whether or not you already claimed! Your COLA-adjusted PIA is recalculated annually until you die.

  Note that this COLA is quietly applied in December so it's reflected in your January benefit (because they're paid in arrears), meaning every month of the calendar year your gross benefit is the same. (A nice bit of resulting simplicity.)

• Next is where it gets really weird! You now have in hand your PIA-based, factor- and COLA-adjusted, monthly retirement benefit amount for each given year, ending in a multiple of a dime. If you are on Medicare, the monthly premium is also rigged to be the same amount every month of each calendar year (also ending in a whole dime). Deduct this Medicare premium from your benefit, then truncate the result to a whole dollar, then add back the same Medicare premium to get your gross payment before the deduction!

  Because of this your actual monthly net payment amount after your Medicare deduction is always(*) a whole dollar, but up to $0.90 less than you might expect after PIA + factor + COLA. However, the gross (taxable) amount shown on your annual next-year SS statement, and the total received for up to 12 months in the past year on your annual SSA-1099 statement, is often not a whole dollar amount -- except in years like 2024 when the Medicare premium ended in ".00".

  (And that's for Part B premiums. I have no idea if/how Medicare Part A factors into this for people without sufficient Medicare credits for free Part A! But in my experience people are unlikely to have sufficient, that is, 40, SS credits without also having 40 Medicare credits; if anything, the reverse.)

• (*) But wait! If you file a Form W-4V for voluntary SS withholding, you can only choose certain percentages: 7%, 10%, 12%, or 22%, the last three matching the lowest three federal tax brackets. It appears that SS multiplies your gross amount above by the chosen percentage, truncates that to a dime, and withholds that amount, meaning your net pay after both Medicare and withholding is often not a whole dollar amount after all!

  My wife is seeing this in 2025 when she has added voluntary withholding.