How is the amount received from Social Security Retirement Benefits calculated?

The amount received from Social Security Retirement Benefits is calculated based on the individual's average earnings during their working years. This system is designed to provide benefits proportional to the earnings over a person's lifetime, ensuring that those who contributed more to the Social Security system through payroll taxes receive higher benefits upon retirement.

The calculation involves indexing a person's earnings to account for wage growth over time, then determining the average of their highest-earning years, specifically the 35 years in which they earned the most, adjusting for inflation. This average is then subject to a formula that determines the primary insurance amount (PIA), which ultimately influences the retirement benefit received. This method reflects the intention of the Social Security program to replace a portion of a worker’s pre-retirement income based on their contributions, making it a more equitable system for retirement income than a flat-rate benefit would be.

In contrast, the other options do not accurately represent how Social Security benefits are determined. A flat rate for all retirees does not consider individual histories of earnings and contributions. Calculating benefits based solely on hours worked lacks the nuance of income levels and does not factor in variable earnings across a career. Additionally, using the last salary before retirement would not be representative of an individual's long-term earning history, leading to