A walkthrough of how your monthly Social Security benefit is calculated

Although there are many factors that can affect the amount you’ll be receiving monthly, there are four key elements that determine what you’ll take home.

The first two, your earning history and work history, are tied at the hip. Long story short, the Social Security Administration (SSA) takes into account your 35 years with the highest earnings, adjusted for inflation, when calculating your monthly benefit.

This basically means that it’s extremely important for you to earn as much as you can in your working years. There’s, of course, a maximum taxable earnings threshold, which in 2022 was $147,000. Generating earned income for at least 35 years is equally important in order to maximize your retirement benefit.

The third key factor is your full retirement age (FRA). This is the age when an individual becomes eligible to receive 100% of their monthly Social Security payout. For those who were born in 1960 or after, the FRA is 67.

The fourth component that can affect your monthly retirement benefit is your claiming age. You can start taking your Social Security payouts before or after your full retirement age, which can result in a lower (when taken before) or bigger (when taken after) monthly benefit. Depending on the year you were born, this cut-down can be up to 30% per month, and the increase can be as high as 32%.