Social Security benefits

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. Then they calculate your average monthly indexed earnings during the 35 years in which you earned the most. They apply a formula to these earnings and arrive at your basic benefit, or "primary insurance amount" (PIA). This is the amount you would receive at your full retirement age, for most people, age 65. However, beginning with people born in 1938 or later, that age will gradually increase until it reaches 67 for people born after 1959. For more information, see The Full Retirement Age is Increasing.

There are several ways you can determine an estimate of your retirement benefits:

1. Request a Social Security Statement. Make your request over the Internet and we will mail you a detailed report of your lifetime earnings and an estimate of retirement, disability and dependent benefits.
2. Compute your own benefit estimate using a program that you can download for your PC. A version for the Mac is available.
3. Use our online calculator.
4. See examples of how benefits are computed at Benefit Calculation Examples.
5. See the Social Security publication, Your Retirement Benefit: How It Is Figured.

The maximum benefit depends on the age at which a worker chooses to retire. The amount for 2008 for a person retiring at full retirement age (65 years and 10 months) is $2,185. This is based on earnings at the maximum taxable amount for every year after age 21. You can see the maximum amount of taxable earnings for each year at Contribution and Benefit Base.

Some people who get Social Security will have to pay taxes on their benefits. Less than one-third of our current beneficiaries pay taxes on their benefits.

You will have to pay federal taxes on your benefits if you file a federal tax return as an "individual" and your total income is more than $25,000. If you file a joint return, you will have to pay taxes if you and your spouse have a total income that is more than $32,000.

For more information, call the Internal Revenue Service (IRS) toll-free at 1-800-829-3676 and ask for IRS Publication Number 915, Social Security and Equivalent Railroad Retirement Benefits. People who are deaf or hard of hearing may call the IRS toll-free number, 1-800-829-4059.