Social Security adjusts a person's benefits by her retirement age, the amount she earned prior to retirement and by cost-of-living adjustments, states the Social Security Administration. The amount is also decreased by retirement benefits on which Social Security tax was not paid.
As of 2015, a person is only eligible to receive Social Security benefits if she accrued 40 credits prior to retiring, according to the SSA. A person accrues up to four credits per year.
To determine the benefit amount, the Social Security Administration calculates the average indexed monthly earnings from the 35 years in which the person earned the most, states the SSA. To do this, the national average wage index for each year prior to the base year, two years prior to the retirement age, is divided by the national average wage index for the base year. The earnings for the two years prior to the retirement age are taken at face value and not adjusted. The total amount of earnings during the 35 years is then divided by 420 months to get the average indexed monthly earnings.
The average indexed monthly earnings are divided into segments called bend points, which, as of 2015, are $826 and $4,980, according to the SSA. The portion of the average indexed monthly earnings up to the first bend point is multiplied by 90 percent. The portion up to the second bend point is multiplied by 32 percent, and the remaining amount is multiplied by 15 percent. These amounts are then added together, and the result is the primary insurance amount.
As of 2015, the primary insurance amount is decreased by 25 percent if the person retires at age 62, states the SSA. The retiree receives the full primary insurance amount if she retires at age 65, and receives more than the primary insurance amount if she retires after age 65. The primary insurance amount is also increased by cost-of-living adjustments.