How is Social Security Calculated for Retirement?

Reviewed by: Mark Zagurski, CLU®, ChFC®, CMFC® and CRPC®

Summary: Social Security retirement benefits are based on your highest 35 years of earnings, adjusted for wage growth over time. The Social Security Administration uses those earnings to calculate your average indexed monthly earnings, applies a formula to determine your primary insurance amount, and then adjusts the result based on the age you choose to start benefits.

Key takeaways

• Social Security retirement benefits are based on your highest 35 years of earnings, adjusted for wage growth.
• The Social Security Administration uses your earnings record to calculate your average indexed monthly earnings, then applies a formula to determine your primary insurance amount.
• Your primary insurance amount is the benefit you would receive at full retirement age, before early or delayed claiming adjustments.
• Starting benefits before full retirement age generally lowers your monthly amount, while waiting beyond full retirement age can increase it until age 70.
• More years of work can increase your future benefit if they replace years with lower or no earnings in your record.

What is Social Security based on?

Social Security retirement benefits are based on your lifetime earnings that were subject to Social Security taxes. The Social Security Administration reviews your earnings record, adjusts many of those earnings for wage growth over time, uses your highest 35 years of earnings, and then applies a formula to determine your basic monthly benefit at full retirement age.

That means Social Security is not based on your last few working years or your three highest years. It is based on a longer earnings history, which is one reason additional work years can sometimes raise your future benefit.

Steps Social Security uses to calculate your benefits

Social Security uses a multi-step process to calculate retirement benefits. In simple terms, the system first checks whether you qualify, then reviews your earnings record, and finally applies a formula to determine your monthly benefit.

1) Earn enough work credits to qualify

Before Social Security calculates a retirement benefit, it first determines whether you are eligible. In most cases, that means earning 40 work credits, which is generally equal to about 10 years of work.

Credits are based on your earnings. In 2026, you receive one credit for each $1,890 of earnings, up to the maximum of four credits per year.

Work credits do not determine the size of your monthly benefit.

2) Review your earnings record

Once eligibility is established, Social Security looks at your earnings record. That includes the wages and self-employment income reported under your Social Security number over the course of your working life. If earnings are missing or incorrect, your future benefit estimate may also be off.

3) Adjust past earnings for wage growth

Next, Social Security adjusts many of your past earnings to account for changes in average wages over time. This process is called indexing. It is meant to put earlier-career earnings on a more comparable footing with later-career earnings.

4) Use your highest 35 years of earnings

After indexing, Social Security selects your highest 35 years of earnings for the calculation. If you worked fewer than 35 years, the missing years are counted as zeros, which can lower your average.

This is why working longer can sometimes increase your benefit. If a new year of earnings replaces a lower-earning year, or a zero, your future monthly benefit may rise.

5) Calculate your average indexed monthly earnings (AIME)

Once Social Security has your top 35 years, it adds them together and converts them into a monthly average. That number is called your average indexed monthly earnings, or AIME, which is used as the starting point for your benefit calculation.

6) Apply the formula to determine your primary insurance amount (PIA)

After AIME is calculated, Social Security applies a formula to determine your primary insurance amount, or PIA. Your PIA is your basic monthly retirement benefit at full retirement age before early-claiming reductions or delayed retirement increases are applied.

7) Adjust the benefit based on when you claim

Once Social Security calculates your PIA, the age you choose to start benefits can still change what you receive each month. Claiming before full retirement age generally results in a lower monthly benefit, while waiting beyond full retirement age may increase it until age 70.

This final step helps explain why two people with similar earnings histories can receive different monthly amounts. Even when the starting calculation is similar, the timing of when benefits begin can change the result.

Why your highest 35 years matter more than your last three

A common misconception is that Social Security is based on your three highest years. It isn’t. Social Security retirement benefits are based on your highest 35 years of indexed earnings.

That means a few things:

• A late-career raise can help, but it usually matters most if it replaces a lower-earning year in your top 35.
• Working longer can improve your benefit if you have years with zeros or weaker earnings in your record.
• If you already have 35 strong earning years, extra work may still help, but the impact may be smaller.

Why the formula is only part of the picture

Understanding how Social Security is calculated can help explain where your benefit amount comes from. But the formula alone does not answer a separate question many people still face: when to claim and how Social Security fits into the rest of their retirement income plan.

According to a Mutual of Omaha Retirement Study, Social Security is a source of retirement income for 96% of retired respondents. At the same time, fewer than 2 in 10 said they were very or extremely confident that Social Security alone would cover essential expenses every month.*

That’s why knowing how your benefit is calculated can be helpful, but understanding how it may work alongside your broader retirement income plan can be just as important.

As Mark Zagurski, director of strategy and operations at Mutual of Omaha Advisors and host of the Make it Personal Podcast, explains, “It’s never too late to create a plan to give you the financial security and freedom you deserve.”

Get guidance on your Social Security options

A Mutual of Omaha financial professional can help you review how Social Security may fit with your broader retirement income plan. Not sure how long your money will last in retirement?  Use our calculator to see how you’re tracking.

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Frequently asked questions about how Social Security is calculated

Is Social Security based on your three highest earning years?

No. Social Security retirement benefits are generally based on your highest 35 years of indexed earnings.

How does Social Security determine your benefit?

Social Security reviews your earnings record, adjusts eligible earnings for wage growth, uses your highest 35 years, calculates your average indexed monthly earnings and applies a formula to determine your primary insurance amount. People of all ages can access their most up-to-date future Social security benefit statement by visiting ssa.gov and following the instructions to open your account.

Can you get $3,000 a month in Social Security?

Yes, some people can receive $3,000 a month or more in Social Security retirement benefits, but it usually takes a strong earnings history over many years. In 2026, Social Security says the maximum retirement benefit is $4,152 a month at full retirement age and $5,181 a month at age 70, so a $3,000 monthly benefit is possible for some workers, though many people receive less.

What is one of the biggest mistakes people make regarding Social Security?

One common mistake is focusing only on when to claim benefits without understanding how earnings history and claiming age affect the monthly amount.

Reviewed by: Mark Zagurski, CLU®, ChFC®, CMFC® and CRPC®

Mark is Mutual of Omaha Advisors’ Director of Strategy & Communications. With more than 30 years of experience, he has worked extensively in advisor development, strategy, and communications, focusing on helping advisors and their clients make informed financial decisions. He is also the host of the Mutual of Omaha Advisors podcast, “Make it Personal,” which explores personal finance and strategies to help you take control of your money and future.

Sources:

*Mutual of Omaha worked with research vendor, quantilope, to conduct research related to Decumulation – the strategic drawdown of assets during retirement years. This research had a sample size of 496 respondents aged 50+ who were already retired (n=327) or nearing retirement (n=169) within the next 10 years. Respondents who stated they did not have at least some assets to draw down during retirement were excluded from the survey. The research was conducted in a 10-minute online survey from October 6-15, 2025. All data included in this report are based on Mutual of Omaha proprietary research unless otherwise noted.

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc. Mutual of Omaha Advisors is a division of Mutual of Omaha Insurance Company.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

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