How Your Social Security Benefit Is Actually Calculated

**Robert Brokamp** (0:02)
How Your Social Security Benefit Is Actually Calculated, this week on the Saturday Personal Finance Edition of The Motley Fool Hidden Gems Investing Podcast.
I'm Robert Brokamp, and it's now been a little over a year since I took over these Saturday episodes of our show. If you've been listening along, you've likely noticed that I've done some experimenting here and there. In most episodes, I have a guest, but sometimes it's just me, as will be the case this week.
In previous episodes, I've included some items from the news and maybe a suggestion for getting something financial done. But I've decided to hold off on adding those segments for now because they've often caused the episodes to run a little long. Also, we begin lots of questions from our listeners. Most of them are related to stocks, but many are about financial planning, including one I'm going to address in this episode. I did a financial planning mailbag back in March, and I think I'll continue to do one of those each quarter with the next one in September. So I'd love to hear your personal finance questions and your feedback on and suggestions for these Saturday episodes. You can email them to podcasts at fool.com, that's podcast plural with an S, at fool.com. One listener who sent in a question is Fred, and here's a slightly edited version of his question.
Can you clarify the Social Security 35 years rule? I started contributing at age 26, I'm 45 years old now, and at the maximum salary for my health care career. I plan to semi-retire and reduce my income by 50% at age 55 I plan to work till age 67 and start collecting Social Security after that. How can I calculate my benefit?

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**Robert Brokamp** (3:08)
Well, Fred, when it comes to calculating your potential Social Security benefit, there are three primary concepts to understand. The first is your average indexed monthly earnings, AIME, often pronounced as AIME. The second are the Social Security bend points, and the third is your primary insurance amount. Let's go over each of those. So as you hinted at in your question, Social Security is based on your 35 highest earning years. The amounts that you earn in the years before turning age 60 are adjusted for wage inflation based on the national average wage index. Those 35 highest earning years are totaled together and then divided by 420, which is the number of months and 35 years. The result is your average index monthly earnings or AMI. Now a couple of things about the AMI to keep in mind. First, there's a cap on how much annual income is subject to Social Security taxes and thus factored into the AMI calculation. That amount is adjusted each year and for 2026, it is $184,500.
Secondly, years in which you didn't work, maybe because you retired early or you stayed home to raise the kids, will count as zeros in your AMI calculation if you don't have at least 35 years of earnings. So working another year or few, even part-time will replace some of those zeros and improve your AMI. The next step in your benefit calculation is to apply the so-called bend points to your AMI. These bend points are adjusted each year for wage inflation, but are permanently locked in when the worker turns 62 For those turning that age in 2026, here are those bend points at how they interact with your AMI. Start with 90 percent of the first $1,286 of the AMI, plus 32 percent of the AMI between $1,286 and $7,749, plus 15 percent of the AMI above $7,749.