- SSA. SSA could suspend your Social Security payment if you don't follow this mandatory step
- SSA. Here is the average Social Security benefit for retired workers by age in 2025
As retirement approaches for workers planning to exit the workforce in 2025, understanding how Social Security benefits are determined is essential to creating a stable and informed financial plan. Your monthly benefit is the result of a detailed formula used by the Social Security istration (SSA) that considers your income history, age at retirement, and inflation adjustments.
The process starts with eligibility. To receive retirement benefits, workers must earn enough Social Security credits over their lifetime.
"To qualify for Social Security retirement benefits, you must earn at least 40 credits over your working life," according to the SSA.
In 2025, one credit is earned for every $1,730 in wages or self-employment income, up to four credits per year.
Once you qualify, the calculation process begins with indexing your past wages to reflect current average wage levels.
Breaking down the formula behind your future benefit
The core of the benefit calculation lies in your Average Indexed Monthly Earnings (AIME). This figure is derived by taking your 35 highest-earning years-adjusted for inflation-and averaging them. If you've worked fewer than 35 years, the SSA fills in the gaps with zero-earning years, which can reduce your benefit amount.
Once AIME is calculated, the SSA uses it to determine your Primary Insurance Amount (PIA)-the base benefit you'd receive at full retirement age (FRA). For those turning 62 in 2025, the PIA formula includes 90 percent of the first $1,226 of AIME, plus 32 percent of AIME over $1,226 and up to $7,391, plus 15 percent of AIME over $7,391.
Claiming age plays a significant role in your monthly benefit. Taking benefits before reaching FRA reduces your payout, while waiting beyond FRA increases your monthly check up to age 70.
Another factor is the annual cost-of-living adjustment (COLA), which helps benefits keep pace with inflation. For 2025, a 2.5 percent COLA will be applied.
"Social Security benefits are adjusted annually for inflation. In 2025, a COLA of 2.5 percent will increase benefits to help maintain purchasing power," AP News reported.
For those retiring in 2025, some key figures are worth noting. The maximum monthly benefit for someone retiring at full retirement age will be $4,018. If you decide to keep working before reaching your FRA, there are income thresholds to be aware of.
"$1 is deducted for every $2 earned above $23,400 in 2025," the SSA stated. In the year you reach FRA, that limit shifts to "$1 is deducted for every $3 earned over $62,160, up to the month you reach FRA."