Social Security: Benefit Calculation

Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI), commonly referred to on a combined basis as OASDI, are social insurance programs that protect insured workers and their family members against loss of income due to old age, disability, or death. These programs are often referred to as Social Security. Monthly Social Security benefit amounts are determined by federal law. Most Social Security beneficiaries are retired or disabled workers whose monthly benefits depend on their past earnings, the age at which they claimed benefits, and other factors. Benefits are also paid to workers’ dependents and survivors based on the earnings of the insured workers. The computation process involves three main steps: First, a summarized measure of lifetime Social Security–covered earnings is computed. That measure is called the average indexed monthly earnings (AIME). Second, a progressive benefit formula is applied to the AIME to compute the primary insurance amount (PIA). As a result, workers with higher AIMEs receive higher Social Security benefits, with benefits received by people with lower earnings replacing a larger share of career-average earnings. Third, an adjustment may be made based on the age at which a beneficiary chooses to begin receiving benefits. For retired workers who claim benefits at the full retirement age (FRA) and for disabled workers, the monthly benefit equals the PIA. Retired workers who claim earlier than the FRA receive monthly benefits lower than the PIA (i.e., an actuarial reduction), and those who claim later than the FRA receive benefits higher than the PIA (i.e., a delayed retirement credit). Retired-worker benefits can be affected by other adjustments. For example, benefits can be temporarily withheld under the retirement earnings test if a beneficiary under the FRA continues to work and earns above a certain amount. Although not an adjustment, income tax levied on Social Security benefits can affect the beneficiary’s net income. The Social Security benefit calculation process is the same for all workers. The benefit calculation process exhibits three characteristics: Individual equity. Benefit amounts for a worker are tied to covered earnings and the taxes paid by the worker. The more a worker has earned and paid in payroll taxes, the higher the worker’s benefit. Progressivity. Workers with relatively lower career-average earnings experience relatively higher earnings replacement rates. A lifetime very low earner will have a higher replacement rate than a lifetime maximum earner. Stable replacement rates. Since the 1980s, the level of preretirement earnings that is replaced by Social Security benefits has been relatively stable from one birth cohort to the next. Benefits for eligible dependents and survivors are based on the worker’s PIA. For example, a dependent spouse can receive a benefit equal to 50% of the worker’s PIA, and a widow(er) can receive a benefit equal to 100% of the worker’s PIA. Dependent benefits may also be adjusted based on the age at which they are claimed and other factors. In November 2025, there were approximately 70.4 million Social Security beneficiaries collecting an average monthly benefit of $1,869. Retired-worker and disabled-worker beneficiaries accounted for 86.2% of the beneficiary population. The largest single category of beneficiaries was retired workers (76.1%), with an average monthly benefit of $2,013. The second-largest category was disabled workers (10.1%), with an average monthly benefit of $1,589. Family members of retired, disabled, or deceased workers accounted for the remainder of the beneficiary population (13.8%), with an average monthly benefit of $1,280. The Social Security Administration’s Office of the Chief Actuary estimates that about 93% of workers, about 185 million, are covered under the OASDI programs. Because of the number of people receiving benefits, the number of people expected to receive benefits, and the program’s projected long-term financial imbalance, there has been congressional interest in making changes to the benefit formula.