Social Security doesn’t look at just your last decade of paychecks. Instead, it uses your highest 35 years of inflation-adjusted earnings. If you don’t have 35 years, zeros are averaged in and those zeros can significantly drag down your benefit. All your indexed earnings are divided by 420 months to determine your Average Indexed Monthly Earnings (AIME). Then the formula applies bend points that favor lower-income earners by replacing a higher percentage of their earnings.

The difference of working a few more years can be dramatic. For example, someone earning $75,000 annually who worked 35 years might receive around $2,700 per month at full retirement age. With only 25 years, that drops to $2,100 a $600 cut that adds up to more than $140,000 over 20 years of retirement. For higher earners making $150,000, the gap is about $530 a month or $160,000 over 25 years. Even lower earners see meaningful differences.

The formula is progressive, but not linear. Low-income workers get 90% credit on their first slice of income, middle earners get 32% on theirs, and high earners only 15% beyond the top bend point. This is why mid-income earners often benefit most, in percentage terms, by working additional years.

Timing also matters. Claiming benefits at 62 permanently reduces your payout to about 70% of your full benefit. Waiting until 70, on the other hand, boosts your check by up to 30%. In dollar terms, that can mean hundreds more each month, and tens of thousands more over your lifetime.

So should you always work 35 years? Not necessarily. The answer depends on your personal goals, finances, and lifestyle. For some, the extra income is worth staying in the workforce longer. For others, retiring earlier and accepting a smaller benefit is the right choice. The key is knowing the trade-offs.

One final note: double-check your Social Security statement. Errors can happen, and missing wages in your record will affect your benefit. Make sure your work history is accurate long before you file.

Social Security is more than just a government check it’s the foundation of retirement income for millions of Americans. By understanding how it’s calculated, you can make smarter decisions about when to retire, whether to keep working, and how to structure your overall financial plan for long-term security.

All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.

The post How Social Security Really Calculates Your Benefits and Why Every Year of Work Matters appeared first on ROI TV.