How Social Security Benefits Are Determined: A Simple Guide

If you are wondering how Social Security Disability Insurance is calculated and are familiar with how retirement benefits are determined, you’ll find that they are pretty similar. Both stem from your income history, or “covered earnings,” which you pay taxes on throughout your working years. Here is a simple guide for how Social Security benefits are calculated.

Social Security Administration’s (SSA) Calculation Factors

To calculate your benefits, the Social Security Administration (SSA) starts by looking at your average monthly income. This number is composed of your income statements across your top 35 best-paid working years, adjusted for wage changes over time. From there, the final figure they land on will then be put into a formula that determines your full retirement benefit or primary insurance amount (PIA). Various factors that may affect your PIA:

• The year you’re eligible to be at full retirement age (FRA) depends on your birth year.
• The amount of benefits you are given depends on your age in relation to your FRA.
• Your PIA is primarily based on your overall earnings history.

Whether you are applying for retirement or disability benefits, the PIA formula’s distribution will likely provide higher benefits to lower-income individuals. The main difference between the two is how much data is taken into account to calculate your full benefit and how soon you can collect it.

Retirees and Disability Circumstances

As mentioned previously, the SSA considers your top 35 best-paid employed years to calculate the monthly average income and PIA. Something to keep in mind is that only yearly earnings up to an annually adjusted limit are counted in calculations. In 2025, the cap has increased to $176,1000. Once you reach FRA, you will be eligible to claim the full amount. Those ages are currently:

• 66 and 6 months for retirees born in 1958
• 66 and 10 months for retirees born in 1959
• 67 for retirees born in 1960 or later

For workers who may become disabled before reaching an eligible retirement age, the SSA looks at a different time frame to determine your primary insurance amount. Similar to the retiree’s process, the number of years of income used to determine your benefits differs depending on the age you started to experience your disability. These calculations are made in the following way:

• Starting from the year you turn 22, the SSA counts the number of years until you became disabled
• Depending on how long you have been working, it then discards one to five years. (The more years you have been working, the more “dropout years” you receive.)
• The results of this evaluation will determine how many of your highest-earning years will be used to calculate your PIA.

If approved, you’ll be awarded full benefits (100% of PIA) of your SSDI regardless of your age.

More Details Regarding Social Security Benefits

If you are currently collecting any other form of public disability payments (like worker’s compensation), your SSDI benefits may end up being reduced. If you have private disability benefits, no reductions will be made.

If you are still receiving SSDI by the time you reach FRA, your disability benefits will then become retirement benefits at the same rate.

Unlike SSA calculations, your earnings-based calculations will not apply to Supplemental Security Income (SSI). That calculation is done based on financial need and is set by the federal government, and does not look at work history.

Talk With Our Team and Learn More About How Your Social Security Benefits Are Determined

If you or a loved one is facing a debilitating illness or injury that affects the ability to work, you may be eligible to file for SSDI. We understand that the process is complex and may be difficult to navigate on your own. For help from experienced attorneys, call the Social Security disability team at Jan Dils, Attorney at Law, and we can help you understand how your benefits are determined. Call now for a free consultation.