If you’re planning to retire in 2025, it’s important to know exactly how your Social Security benefits will be calculated. Understanding this helps you plan better and avoid surprises later. Your monthly payment is not just a random number—it’s based on your earnings history, retirement age, and inflation adjustments.
Let’s break it down in a simple way so you can understand what to expect from Social Security when you leave the workforce.
Step 1: How Do You Qualify for Social Security?
To get Social Security retirement benefits, you must earn at least 40 credits during your working life. This is the basic eligibility requirement.
In 2025, you earn 1 credit for every $1,730 you make from a job or self-employment. You can earn up to 4 credits per year. So, if you work 10 full years with qualifying income, you’ll have the 40 credits you need.
Step 2: Understanding AIME – Your Lifetime Earnings Average
Once you qualify, the SSA (Social Security Administration) looks at your 35 highest-earning years. These earnings are adjusted for inflation, meaning older wages are updated to match today’s values.
This average is called your AIME (Average Indexed Monthly Earnings). If you worked less than 35 years, the remaining years are filled in with zero income, which could reduce your overall benefit.
Step 3: Calculating Your Monthly Benefit – The PIA Formula
After finding your AIME, the SSA calculates your Primary Insurance Amount (PIA)—this is the monthly benefit you will receive at Full Retirement Age (FRA).
For people turning 62 in 2025, the PIA formula is:
- 90% of the first $1,226 of your AIME
- 32% of AIME between $1,226 and $7,391
- 15% of AIME above $7,391
This gives you a base monthly benefit, which is then adjusted based on when you actually claim it.
Step 4: Your Age at Retirement Matters
If you take your benefits:
- Before your FRA (e.g., at 62), your monthly check is reduced
- At FRA, you get the full benefit
- After FRA (up to age 70), your benefit is increased each year you delay
This choice can make a big difference in how much you receive each month.
Step 5: 2025 COLA Increase
Social Security payments are adjusted each year based on inflation. This is called the Cost of Living Adjustment (COLA).
For 2025, COLA is 2.5%, meaning you will see a slight increase in your monthly check to keep up with rising prices.
2025 Key Numbers for Retirees
Here are some important figures to keep in mind for 2025:
- Maximum monthly benefit at full retirement age: $4,018
- If you keep working before FRA:
You lose $1 for every $2 earned above $23,400 - In the year you reach FRA:
You lose $1 for every $3 earned above $62,160 (up to the month of your birthday)
These earnings limits only apply if you take benefits early while still working.