A popular question that I hear from baby boomers getting ready to retire is “how are Social Security benefits calculated?” This is an important question because it could affect how long you need to work, whether you should continue to work during your retirement years, or other aspects of your retirement plan.

First, please note that you receive a Social Security retirement benefit estimate each year in the mail, usually around your birth date. There are also several calculators available on the Social Security website to help you estimate how much your retirement benefits will be, so you don’t need to know how to calculate the benefit yourself.

It’s still helpful to know how Social Security is calculated, however, so here are the basics:

Basically, your top 35 years of earnings are indexed for inflation, then averaged to determine the basis for your monthly benefit. If you worked less than 35 years, the missing years will be calculated as zero for purposes of determining your benefit amount.

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