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Social Security uses a formula that applies a factor to your average monthly income from the 35 years in which you earned the most.

The benefit will be calculated for your Normal Retirement Age (67 for most people today), and you should receive statements in the mail keeping you updated on your projected or actual Social Security Retirement Benefits.

Every year, you should get a statement from the Social Security Administration that provides you with exact numbers. The amount depends on the age at which you retire, and the contributions you made to Social Security over the years. The formula uses the 35 years in which you earned the most, and divides it by the total number of months in 35 years, which is 420, which leads to your Average Indexed Monthly Earnings (AIME).

If you have not worked for a full 35 years, they will include the “0” years in the calculation. They plug that number into a formula to arrive at your monthly benefit amount at Normal Retirement Age (NRA) which they call your Primary Insurance Amount (PIA).

Normal retirement age for most people now is 67, but it is younger for those born before 1960. Benefits are reduced by up to 30% if taken early, with age 62 being the earliest people can start claiming benefits. Benefits are increased by 8% for every year they are deferred past NRA, but cannot be deferred past age 70.

These calculations take months into account, and not just years. Each working person will have a spousal benefit available to the spouse, and this can lead to various strategies being used by married couples if both worked, where they might claim one of their benefits, and the spousal benefits, while deferring the other spouse’s benefit.

There used to be a strategy known as “file and suspend,” but the Social Security Administration recently took that option off the table. After one spouse dies, the surviving spouse can claim the highest single benefit that was being paid.

Each year, Social Security makes adjustments to your benefits based on the “Cost of Living Adjustment” (COLA). The average benefit paid to a married couple in 2016 is about $2,200. Generally benefits will be somewhere between $700/month and $3,000/month.

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