Calculate your Social Security benefits

This was originally published on Monday, May 25, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q:  I am forty-three years old and I have been working since I was eighteen.  I recently started a retirement fund but I feel that I may not have enough to comfortably retire.  I have been contributing to Social Security since I started working.  I am curious to know how exactly my Social Security benefits are calculated.

A while ago, an elected official called me and asked me to cover Social Security in Money Matters. Thank you for the suggestion. I will cover Social Security over the next few weeks and I apologize it has taken so long to write about it, but finally here is some information.

A:  Starting a retirement fund at any age is better than no retirement fund at all.  Social Security has been around for decades and came into law in 1935.  The idea behind it was that workers could put a small percentage of their pay aside into a cumulative account.  When they retired they would be able to withdraw money out of that account to assist them with monthly living costs.  Over the years, Social Security has made changes to the retirement age, percentages of benefits, cost-of-living and inflation adjustments, and spousal and disabilities benefits.  According to, “the average monthly Social Security check in 2015 is $1,328.”

I wish I could say that calculating your Social Security is straight forward and easy.  But the reality is that it depends on several factors such as age of retirement, how much you earned, and how long you have worked.

The first step in calculating your Social Security benefit is figuring out your Average Index Monthly Earnings (AIME).  AIME is calculated by looking at all the years you worked. The Social Security Agency takes the top thirty-five highest earning years and adds them up.  That number is then divided by the number of months within those years.  That figure is your AIME.  If you have not worked for thirty-five years those years you were unemployed will be given a zero dollar value which will bring your average down resulting in a lower AIME.

The Primary Insurance Amount, or PIA, is the baseline on which your Social Security benefits are calculated if you receive your retirement benefits at your full retirement age.  The full retirement age is the age you receive 100% of your PIA.  Not everyone has the same retirement age.It depends on what year you are born.  To find your full retirement age go to  In your case, a forty-three year old person would have a normal retirement age of 67 years old.

To calculate Social Security benefits today you would calculate your amount using these three variables:

  • For the first $826 of your AIME you will get 90% of it
  • For your AIME over $826 through $4,980 you will receive 32%
  • For the amount higher than $4,980 you will then receive 15%

For example if you were of retirement age and your AIME is calculated at $5,500.  You would receive 90% of the first $826, which is $743.  Since you made over $4,980 calculate 32% of the $4,154 ($4,980 – $826 = $4,154), which totals $1,329.  Lastly your AIME is over $4,980 so include 15% for the $520 left over ($4,154+$826 = $4,980; $5,500-$4,980 = $520) which is $78.  Add the three amounts  ($743+$1,329+$78) for a grand total of $2,150 per month.

But there is still more to consider.  The age at which you retire affects your benefit amount.  Let’s say that you are born in 1954. You can start receiving Social Security retirement benefits at 62 years of age. But according to the Social Security Agency your full retirement age is 66 years old.  If you start receiving your benefits at 62 years old your benefits will be 25% less than your calculated Primary Insurance Amount for the rest of your life.  But if you wait till your full retirement age of 66 you will receive 100% of your PIA.  If you start claiming after 66 years of age add 8% to your PIA to every year you delay receiving benefits until you reach 70.  At 68 you will receive 116% of your PIA.  If you wait till you are 70 to start receiving your benefits you will earn 132% of your PIA.

You can find out what your benefits are by going to and creating an account. Your account will contain your Social Security statement plus your estimated Medicare benefits.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at and read past columns at the Money Matters blog at


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