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Social Security benefits can be a stable source of monthly income when you retire—one that isn't subject to depletion or the whims of the market. But how do you know how much you'll receive?
Your monthly Social Security retirement benefit is calculated based on multiple factors, including how much you earn over your working life, how old you are when you retire and how inflation affects the cost of living. If retirement is still years away, you probably can't calculate your future payment down to the penny yet. But you can learn more about how Social Security benefits are calculated and access tools to help you estimate your future benefits.
How Much Can I Get From Social Security?
One place to start is to look at the maximum benefit you can possibly receive from Social Security: As of 2023, the maximum benefit is $3,627 per month. But receiving the maximum benefit is far from typical. This calculation assumes you've nearly maxed out the system:
- You are retiring at Social Security's full retirement age. For people born after 1959, the full retirement age is 67.
- You've worked 35 years or more and contributed to Social Security in each of those years.
- You earned or exceeded the maximum taxable amount for at least 35 years. The maximum taxable amount changes every year. In 2023, it's $160,200.
Most people don't receive the maximum benefit. The Social Security Administration estimates that the average retiree will receive $1,827 in monthly Social Security retirement benefits in 2023. Here's how average monthly benefits might look for a range of Social Security beneficiaries:
| Estimated Average Monthly Benefits in 2023 | |
|---|---|
| All Social Security beneficiaries | $1,827 |
| Aged couple, both receiving benefits | $2,972 |
| Widowed mother, two children | $3,520 |
| Aged widow(er), alone | $1,704 |
| Disabled worker, spouse and one or more children | $2,616 |
| All disabled workers | $1,483 |
Source: Social Security Administration
Every person's benefits are calculated individually, so your results will vary. How much Social Security you'll personally receive depends on some of the individual factors highlighted below.
How Are Social Security Payments Calculated?
The Social Security Administration calculates your monthly retirement benefits based on the following factors.
Work Eligibility
Generally speaking, you must work and pay into Social Security for at least 10 years over the course of your lifetime. You earn up to four credits per year when you work and pay Social Security taxes. You need 40 credits to qualify for Social Security benefits.
Lifetime Earnings
The Social Security Administration uses 35 years of earnings to calculate your benefits. If you haven't worked for 35 years, your non-earning years will count as zero. On the other hand, if you've exceeded the maximum taxable earnings in any year, the Social Security Administration will count the taxable maximum and not your actual earnings when they calculate your benefit.
Wage Indexing
Here's where the math gets fuzzy. The Social Security Administration indexes your lifetime earnings to adjust for changes in the standard of living over the course of your working life. Using the national wage indexing series, they apply adjustment factors to determine your average indexed monthly earnings (AIME), an average wage amount that reflects real wages during the years you worked.
You can see a readout of indexing factors based on your eligible retirement age if you're interested in doing these calculations yourself. Or use the resources in the next section to have the Social Security Administration do some of the math for you.
Retirement Age
Waiting to retire can work to your advantage. You may qualify for Social Security retirement benefits starting at age 62, but you'll receive significantly more in benefits for every year you continue working. Full retirement age depends on the year you were born: Full retirement age is 67 for people born after 1959, 66 if you were born before 1955 and falls somewhere in between if you were born between 1955 and 1959.
If you continue working after you reach full retirement age, your benefits increase by 8% per year. By age 70, you will have reached your maximum benefit.
Adjustments for Inflation
The Social Security Administration calculates a cost-of-living adjustment (COLA) each year based on the Department of Labor's Consumer Price Index. For 2023, Social Security benefit payments increased 8.7% over 2022 based on COLA.
Retirement Earnings
If you decide to continue working while you're receiving Social Security retirement benefits, your earnings could affect the amount of benefit money you receive. The Social Security Administration sets annual income limits for Social Security recipients, adjusted annually. Limits depend on whether you've reached full retirement age or not.
If you're below full retirement age, your Social Security benefit will be reduced by $1 for every $2 you earn over the annual limit, which is $21,240 for 2023.
If you've reached full retirement age, your benefit will be reduced by $1 for every $3 you earn over and above the annual limit, which is $56,520 for 2023
3 Ways to Estimate Your Social Security Benefits
Understanding the factors that go into calculating your Social Security payment is helpful, but actually doing these calculations may be beyond the average person's capability (or patience level). Fortunately, the Social Security Administration offers tools to help you create personalized estimates and track changes to your profile as you approach retirement.
1. Get a Quick Estimate Using the Social Security Benefits Calculator
Plug in your Social Security number, date of birth and expected retirement date to see a quick estimate of your monthly benefits. The Quick Calculator uses your Social Security number to pull data from your tax returns.
2. Download your Social Security Statement for a Detailed Summary
Your Social Security Statement shows your career earnings and your progress toward eligibility for Social Security retirement benefits and Medicare. Set up a free online account on the Social Security website to access your statement. You'll need email or a mobile phone to complete the setup.
3. Visit Your Account Page for Interactive Help
Your account page offers interactive tools that let you see how your estimated benefits may change at different retirement ages. You can also see how much your spouse and survivors might get after you die.
The Bottom Line
Until you retire and begin collecting Social Security, your potential monthly benefit amount can be a bit of a moving target. Your earnings and retirement date may shift over time. Inflation, too, can have a major impact on how much you receive, and inflation can be hard to predict.
The Social Security Administration recommends visiting your account page annually to check your progress and see how your earnings and any cost-of-living adjustments are affecting your projected benefits. You may want to review your Social Security statement and check your credit reports annually, as part of a yearly financial health review.