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There’s a chance that your Social Security check just got larger, especially if you are still working. No, it’s not a mistake or an out-of-the-blue windfall. Want to know why?
It’s a series of calculations.
The size of your monthly Social Security retirement check is based on a detailed calculation that adjusts all your payments into the plan to create an average. This average amount is a look back over the highest — not consecutive — 35 years of your working life.
The basic calculation
The Social Security Administration (SSA) calls this calculation your average indexed monthly earnings (AIME) amount. It is essentially an indexing formula used to provide fairness when comparing income in your early working years relative to income today.
For example:
- Assume that Bob made $8,000 a year as a new teacher in 1970.
- If Bob was a teacher starting in 2025 that salary would be just over $67,000 a year.
Providing benefits to Bob today based in part on those 1970 dollars wouldn’t be fair, so the SSA uses its indexing formula to provide a leveling effect when comparing the contributions during the 35-year period of time.
Bend points
The next step in the calculation process is to apply something called a “bend point” calculation. The purpose of this bend point calculation is to provide a higher monthly payout to workers with more lower income years.
The “bend point” formula for 2025 is based on the calculated AIME:
- 90 percent of the first $1,226 of AIME
- 32 percent of the value of AIME from $1,227 to $7,391
- 15 percent of the value of AIME above $7,391
These bend point values are indexed each year, but the percentage multipliers stay the same, to calculate the Primary Insurance Amount (PIA).
If Bob had an AIME of $3,000 a month the bend point formula would produce the following results:
- 90% x $1,226 = $1,103
- $3,000 – $1,226 = $1,774 x 32% = $567
- Bob’s PIA per month = $1,103 + $567 = $1,670 a month
The final result of all this math produces the PIA or is the size of the check at full retirement age. Benefits taken before full retirement age would reduce this amount. Benefits starting after full retirement age would increase this amount. (Related: When should I apply for Social Security retirement benefits?)
Payoff?
If you are a worker who is still working and continues to pay in to the Social Security system for a longer period than 35 years, then the higher payments into the system today will replace the lower indexed amounts in the 35-year average. (Related: Can I work and still receive Social Security benefits?)
This creates a higher AIME, and when the bend point calculation is applied, the result is a higher PIA payment. Your Social Security check goes up.
Let’s assume that Bob’s AIME increased to $3,800 a month because of higher contributions over the 35-year period of time.
- 90% x $1,226 = $1,103
- $3,800 – $1,226 = $2,574 x 32% = $823
- Bob’s PIA per month = $1,103 + $823 = $1,926 a month
It is important to remember that your PIA can never go down. The PIA works like a ratchet wrench. It can only move one way and that is up.
How does the SSA know when more income years should be added to the calculation?
Fortunately, there is a connection between the IRS and the SSA computers. When the IRS system feeds the higher income to the Social Security system, usually around September, the recalculation of the PIA is done.
If the PIA values are higher, you get the October surprise.
This surprise is a one-time deposit into your bank account based on the new PIA calculation. Plus, this new PIA will be carried forward and result in a small benefit increase for the coming years.
Watch for it
All these increases are communicated to you by letter to confirm that the increase is based on the PIA calculation. This is not a windfall or error in the system. It is designed to work this way. You are rewarded for paying into the Social Security system for more than 35 years with higher values during your working life.
Keep an eye out for the deposit and the letter. This is not a mistake but an ongoing process to keep your 35-year average up to date.
Discover more from MassMutual …
Understanding Social Security benefits for spouses
Can I work and still receive Social Security benefits?
Preparing for the Social Security funding dilemma
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