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how is social security calculated

The top two questions that we receive from individuals approaching retirement are:

  • What amount will I received from social security?
  • When should I turn on my social security benefits?

Are you eligible to receive benefits? 


As you work and pay taxes, you earn Social Security “credits.” In 2015, you earn one credit for each $1,220 in earnings—up to a maximum of four credits a year. The amount of money needed to earn one credit usually goes up every year. Most people need 40 credits (10 years of work) to qualify for benefits.

When will I begin receiving my social security benefit?


You are entitled to your full social security benefit at your “Normal Retirement Age” (NRA).  Your NRA varies based on your date of birth.  Below is the chart that social security uses to determine your “normal retirement age” or “full retirement age”:

social security retirement age

For example, if you were born in 1965, your NRA would be 67.  At 67, you would be eligible for your full retirement benefit.

Delayed Retirement or Early Retirement


You can claim benefits as early as age 62, but your monthly check will be cut by 25% for the rest of your life.  The way the math works out, for each year you take your social security benefit prior to your normal retirement age, you benefit is permanently reduce by 6% for each year you take it prior to your NRA.

On the opposite end of that scenario, if you delay claiming past your NRA, you will get a delayed credit of approximately 8% per year plus cost of living adjustments.

There are a number of variables that factor into this decision as to when to turn on your benefit.  Some of the main factors are:

  • Your health
  • Do you plan to keep working?
  • What is your current tax bracket?
  • The amount of retirement savings that you have
  • Income difference between spouses

social security age chart

What amount will I receive from social security?


Social security uses a fairly complex formula for calculating social security retirement benefits but the short version is the formula uses your highest 35 years of income. If you have less than 35 years are income, zeros are entered into the average for the number of years you are short of 35 years of income.  They also apply an inflation adjustment to your annual earnings in the calculation.

You can obtain your Social Security statement by creating an account at Your statement contains lots of valuable information, such as:

  • Your estimated benefit amount at full retirement age
  • Eligibility for benefits
  • A detailed history of how much you’ve earned each year

Keep in mind that the figures in your statement are just estimates, and your eventual benefit amount could be quite different, especially if you’re relatively young now.


Michael Ruger

About Michael………

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

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Investment advisory services offered through Greenbush Financial Group, LLC. Greenbush Financial Group, LLC is a Registered Investment Advisor. Securities offered through American Portfolio Financial Services, Inc (APFS). Member FINRA/SIPC. Greenbush Financial Group, LLC is not affiliated with APFS. APFS is not affiliated with any other named business entity. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.