Social Security benefits are based on lifetime earnings. The Social Security Administration first adjusts a taxpayer's actual earnings by accounting for changes in wages since the year the earnings were received. These adjusted monthly earnings are averaged for the 35 highest earning years, notes My Retirement Paycheck. A formula is applied that determines a person's basic benefit or primary insurance amount. This is the amount paid monthly at the worker's full retirement age, normally 65 or older, depending upon birthdate.
The primary insurance amount formula consists of three separate percentages of the average adjusted monthly earnings, explains My Retirement Paycheck. The portions depend upon when the worker reaches age 62, becomes disabled before age 62 or dies before age 62. For 2015, these portions, referred to as bend points, are amounts up to $826, the amount between $826 and $4,980, and any amount over $4,980.
For an individual who becomes eligible for Social Security in 2015, his primary insurance amount is the sum of 90 percent of the first $826 of his average adjusted monthly earnings, 32 percent of his average adjusted monthly earnings between $826 and $4,980, and 15 percent of his average adjusted monthly earnings above $4,980, according to the Social Security Administration. For example, if a person's average adjusted monthly earnings during his 35 highest earnings years is $6,000, his primary insurance amount is $2,225.