By: Lim Chan
June 1, 2025
Like many advanced nations—such as France, Germany, Japan, and South Korea—the United States has a social safety net designed to provide financial security for its citizens. In France, it is called la Sécurité Sociale; in Germany, Sozialversicherung; and in South Korea, the National Pension Service. In the U.S., this system is known as Social Security, established by the Social Security Act of 1935, signed into law by President Franklin D. Roosevelt. Over time, the program has expanded beyond its original scope, now offering a range of benefits, including retirement income, disability support, and survivor assistance.
Side note: Unemployment benefits are not part of Social Security. Instead, unemployment insurance is a separate program administered by individual states.
Today, we’ll focus on qualifying for Social Security retirement benefits and how those benefits are calculated.
To be eligible for Social Security retirement benefits, you must accumulate 40 work credits. Since you can earn up to 4 credits per year, most workers qualify after about 10 years of employment, provided their yearly earnings meet the required threshold. In 2025, you earn one credit for every $1,810 in earnings, up to a maximum of four credits ($7,240) per year.
Retirement benefits at full retirement age are determined using the Primary Insurance Amount (PIA), which is calculated based on average indexed monthly earnings (AIME). This formula considers a worker’s 35 highest-earning years after age 21. If a person has fewer than 35 years of work history, missing years are counted as zero-income years in the calculation. Conversely, if someone has worked more than 35 years, only their highest-earning years are factored in.
The Primary Insurance Amount (PIA) is determined by applying three separate percentage rates to portions of a person’s Average Indexed Monthly Earnings (AIME), commonly referred to as bend points. For 2025, the bend points are as follows:
- The first $1,226
- The portion between $1,226 and $7,391
- The portion above $7,391
The Social Security Administration (ssa.gov) applies the following formula to calculate benefits:
- 90% of the first $1,226 of AIME
- 32% of AIME above $1,226 and up to $7,391
- 15% of AIME above $7,391
This total is then rounded down to the nearest $0.10, if necessary.
For example, consider a worker with total indexed earnings of $3.5 million over their 35 highest-earning years—an average salary of $100,000 per year. Their AIME would be $8,333.33 ($3.5 million ÷ 420 months).
Applying the PIA formula: a. The first bend point: $1,226 × 90% = $1,103.40 b. The second bend point: $7,107.33 ($8,333.33 – $1,226) × 32% = $2,274.35 c. This worker has no earnings above $7,391, so there is no benefit at this level.
Adding up these amounts: $1,103.40 + $2,274.35 = $3,377.75
Since benefits are rounded down to the nearest dime, this worker’s PIA—if claimed at full retirement age—would be $3,377.70.
Two additional points to consider:
- You can file for benefits before full retirement age (as early as age 62), but your monthly benefit will be reduced by up to 30%.
- If you delay filing beyond full retirement age, your benefit increases, up to age 70.
For 2025, the maximum benefit at full retirement age is $4,018, while the maximum benefit at age 70 is $5,108.
In summary, understanding how Social Security benefits are calculated can help you plan for retirement more effectively and verify the accuracy of the estimates shown in your Social Security record.