Social Security benefits are based on earnings averaged over most of a worker's lifetime. Your actual earnings are first adjusted or "indexed" to account for changes in average wages since the year the earnings were received. We calculate your average monthly indexed earnings during the 35 years in which you earned the most. We apply a formula to these earnings and arrive at your basic benefit, or "primary insurance amount" (PIA). However, even if two people have a similar earnings pattern, there are factors that can make one individual's benefit amount differ from some one else's.
Some of the factors that can make your neighbor's retirement benefits greater than yours are:
If his lifetime earnings are higher than yours, these higher earnings can result in higher benefits. Your benefit amount is based on how much you earned during your working career. If there were some years when you did not work or had low earnings, your benefit amount may be lower than if you had worked steadily.
If you begin getting benefits at age 62, the earliest possible age for receiving Social Security retirement benefits, your benefit will be permanently reduced. You will not receive as much as you would if you had waited until your full retirement age.
If your neighbor worked after he began receiving Social security benefits, his benefits may be higher. Each additional year you work adds another year of earnings to your Social Security record.
If your neighbor did not begin receiving benefits until after his full retirement age, his benefit will increase automatically by a certain percentage from the time he reaches full retirement age until he starts receiving benefits or until he reaches age 70.
For more information, call Social Security at our toll-free number, 1-800-772-1213 from 7 a.m. to 7 p.m., Monday through Friday, to ask for Your Retirement Benefit: How It Is Figured (Publication No. 05-10070). Or you can go to our website to find a copy of this and other publications.