Social Security: how it is computed and when to claim

So teach us to number our days, that we may apply our hearts unto wisdom. (KJV). Moses asks for the wisdom that comes from taking the length of a life seriously; claiming decisions are one small, literal instance.

Psalm 90:12

Where the number comes from

Social Security is not a savings account with your name on it. Your benefit is calculated, in three steps, from your earnings record.

Your highest 35 years. Every year of covered earnings is indexed for national wage growth, and the best 35 are used. Fewer than 35 working years? The missing years enter as zeros, which is why a few extra late-career years can matter more than people expect.
AIME. Those 35 indexed years are totalled and divided by 420 months, producing your average indexed monthly earnings.
The bend-point formula. Your AIME is run through three brackets: 90% of the first slice, 32% of the next, 15% of the rest. The result is your primary insurance amount (PIA), the benefit at full retirement age. The three percentages are fixed in law; the dollar amounts dividing the brackets, called bend points, change every year and depend on the year you turn 62, so read the current ones at SSA’s PIA page.

That 90/32/15 shape is the whole social contract in three numbers: the first dollars of lifetime earnings are replaced generously, the last ones barely at all.

Claiming: 62, full retirement age, or 70

Your PIA is the benefit at full retirement age (FRA), which depends on your birth year and is 67 for anyone born in 1960 or later. Claim earlier and it is permanently reduced; claim later and it is permanently increased.

Early. Benefits are reduced 6.67% for each of the first three years before FRA and 5% for each of the fourth and fifth. For an FRA of 67, claiming at 62 means a 30% reduction, about 70% of your PIA, for life (SSA).
Delayed. From FRA to age 70 you earn delayed retirement credits of 8% per year (two thirds of 1% per month) if you were born in 1943 or later. Three years of credits lifts the benefit to 124% of PIA. Credits stop at 70; waiting past your 70th birthday gains nothing (SSA).

So the same earnings record produces roughly 70% or 124% of the same number depending only on timing: a spread of about 77% between the two ends. Note also that these are inflation-adjusted for life, which is a rare and valuable feature.

Spouses and survivors

Two provisions change the answer for married people more than any spreadsheet does.

Spousal benefit. A lower-earning spouse can receive up to 50% of the higher earner’s PIA if that exceeds their own worker benefit (SSA). Delayed retirement credits do not increase a spousal benefit.
Survivor benefit. When one spouse dies, the survivor keeps the larger of the two benefits, not both. The widow(er)‘s benefit is based on 100% of the deceased worker’s benefit including any delayed retirement credits they earned (SSA).

Read those two together and a rule falls out: for the higher earner, delaying does double duty: it raises your own benefit and permanently raises whatever your spouse will live on if you die first. Delay is less about you than about the person left behind (1 Timothy 5:8).

Break-even math, and why it is not the whole question

The usual analysis asks when the delayed, larger checks catch up with the early, smaller ones. Using an FRA of 67, ignoring inflation adjustments and any interest on the money:

Compared	Cumulative benefits equalize around age
Claim at 62 vs. 67	79
Claim at 67 vs. 70	82 or 83
Claim at 62 vs. 70	80

Die before those ages and claiming early won. Live past them and delaying won. But framing it as a bet gets the risk backwards. Running out of money is the bad outcome; dying early is not a financial problem. Delaying buys the largest inflation-protected lifetime income available to most households. It is longevity insurance, and insurance is not supposed to “pay off.” Nobody regrets unused fire coverage.

That said, the honest answer varies. Claiming early is reasonable for someone in poor health, someone with no other income and no ability to work, or a lower-earning spouse whose delay adds little. “Number our days” (Psalm 90:12, KJV) is a call to face the length of a life honestly, including the possibility that it is short, and the possibility that it is very long.

Benefits can be taxed

Many people are surprised by this. If your combined income (adjusted gross income, plus nontaxable interest, plus half your benefits) exceeds thresholds set in law, part of your benefit becomes taxable income: up to 50%, and above a higher threshold up to 85% (SSA). The thresholds differ by filing status and are stated on SSA’s own page; check SSA’s answer rather than assuming. This is one more reason the gap years before benefits and RMDs begin are worth planning deliberately; see decumulation.

Get your own figures from a my Social Security account (the statement, the earnings record, and the estimates at different ages live there) rather than any estimate here. This is general education, not personalized advice.

Check yourself

1How is the primary insurance amount built, and what do 90, 32, and 15 do?
Every year of covered earnings is indexed for wage growth and the highest 35 are used, with missing years counted as zeros. Those are totaled and divided by 420 months to get average indexed monthly earnings, which runs through three brackets: 90% of the first slice, 32% of the next, and 15% of the rest. The result is the benefit at full retirement age. The percentages are fixed in law, but the dollar bend points change every year, so read the current ones at SSA. The shape is the contract: early dollars are replaced generously, the last ones barely at all.
2For someone born in 1960 or later, what do claiming at 62 and at 70 do, and why does the higher earner's delay matter to a spouse?
Full retirement age is 67. Claiming at 62 is a 30% reduction, about 70% of the primary insurance amount for life. Delayed retirement credits add 8% a year from 67 to 70 and stop at 70, lifting the benefit to 124%. A lower-earning spouse can receive up to 50% of the higher earner's amount, and credits do not increase a spousal benefit. When one spouse dies the survivor keeps the larger benefit, not both, based on 100% of the deceased worker's benefit including delayed credits, so the higher earner's delay raises what the survivor lives on.
3Claiming at 62 versus 70 breaks even around age 80, so claiming early is the smart bet if you might die sooner. Is that how the lesson frames it?
No. With a full retirement age of 67 and ignoring inflation and interest, the totals equalize around 79 (62 versus 67), 82 or 83 (67 versus 70), and 80 (62 versus 70). Framing it as a bet gets the risk backwards: running out of money is the bad outcome, and dying early is not a financial problem. Delay buys the largest inflation-protected lifetime income most households can get. It is longevity insurance, and insurance is not supposed to pay off. Claiming early is still reasonable with poor health, no other income and no ability to work, or for a lower-earning spouse whose delay adds little.

Do this now

Open your Social Security account and write your estimated benefit at 62, at full retirement age, and at 70. If you are married, write which earner is higher and whether a survivor would be living on that check. File no claim this week.

Carry this with you