Your Social Security retirement benefit is calculated using a three-step process. First, your Average Indexed Monthly Earnings (AIME) is computed from your highest 35 years of inflation-adjusted earnings. Then, the Primary Insurance Amount (PIA) is calculated using a progressive formula with "bend points" that replace a higher percentage of lower earnings: 90% of the first $1,174, plus 32% of earnings between $1,174 and $7,078, plus 15% of earnings above $7,078 (2024 bend points). The PIA is then adjusted based on when you claim benefits.

Claiming before your Full Retirement Age (FRA) permanently reduces your benefit. For each month before FRA (up to 36 months), the benefit is reduced by 5/9 of 1%. For months beyond 36 before FRA, the reduction is 5/12 of 1% per month. Claiming at age 62 with an FRA of 67 results in a 30% permanent reduction. Conversely, delaying benefits past FRA earns Delayed Retirement Credits of 8% per year (2/3 of 1% per month) up to age 70. This means claiming at 70 instead of 67 increases your benefit by 24%.

The optimal claiming age depends on your health, other income sources, and financial needs. Those with shorter life expectancies or immediate financial needs may benefit from claiming early. Those in good health with other income sources often benefit from delaying to maximize the guaranteed income stream. For married couples, coordinating claiming strategies between spouses can maximize the combined lifetime household benefit, particularly through strategies that protect the surviving spouse's income.