How Do They Determine Social Security Retirement Benefit?

Everyone has wondered, "how do they determine social security retirement benefits? You may even have parents, grandparents, or other relatives who are drawing these benefits, and know how much their monthly income from Social Security retirement benefits is, but you may not know why they are getting that much (or little). Social Security retirement benefits are generally based on the average amount of your earnings over the entire time you worked. It is not, as some people believe, based on the salary you made the last five years you worked, nor is it based on the highest salary you drew over a three-year period of time.

Most people start collecting Social Security retirement benefits as soon as they reach age 62, which is considered the age at which you can retire and draw your full amount. So, as you near or reach age 62, and begin to apply for your benefits, the Social Security Administration will use a number of factors to determine how much you will draw. The first thing they figure out is exactly how many years you earned money. This is considered a base figure. However, this base figure is different if you were born after 1928 they use your 35 highest years of earnings. People born in or before the year of 1928 have their benefits calculated on a fewer number of years.

The next thing the Social Security Administration does to figure your Social Security retirement benefits is adjust the figures obtained from the calculations performed in the previous paragraph for wage inflation. They call this “indexing." The remaining figures used to determine Social Security retirement benefits comes from determining average adjusted monthly earnings based on the information obtained right at the first. From there, they use a formula, set out by law, that gives certain percentages. Other calculations are then made to come up with the amount of your Social Security retirement benefits.

Figuring Social Security retirement benefits is a very complicated procedure, and the steps set out above only give a small part of it. The best thing you can do is make sure your earnings figures are accurate. Check them against the figures that are stated in the yearly statement you receive from the Social Security Administration. If you notice any discrepancies, you can take steps to correct them now instead of waiting until it is time to collect Social Security retirement benefits, so that there will be no delay in you collecting your benefits.