How Social Security Benefits Are Computed: In Brief (CRS Report for Congress)
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| Release Date |
Revised May 13, 2020 |
| Report Number |
R43542 |
| Report Type |
Report |
| Authors |
Barry F. Huston |
| Source Agency |
Congressional Research Service |
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Summary:
Social Security, the largest program in the federal budget (in terms of outlays), provides monthly
cash benefits to retired or disabled workers and their family members as well as to the family
members of deceased workers. In 2017, benefit outlays were approximately $952 billion, with
roughly 62 million beneficiaries and 174 million workers in Social Security-covered employment.
Under current law, Social Security’s revenues are projected to be insufficient to pay full
scheduled benefits after 2034.
Monthly benefit amounts are determined by federal law. Social Security is of ongoing interest
both because of its role in supporting a large portion of the population and because of its long-
term financial imbalance, and policymakers have considered numerous proposals to change its
benefit computation rules.
The Social Security benefits that are paid to worker beneficiaries and to workers’ dependents and
survivors are based on workers’ past earnings. The computation process involves three main
steps:
First, a summarized measure of lifetime earnings is computed. That measure is
called the average indexed monthly earnings (AIME).
Second, a benefit formula is applied to the AIME to compute the primary
insurance amount (PIA). The benefit formula is progressive. As a result, workers
with higher AIMEs receive higher Social Security benefits, but the benefits
received by people with lower earnings replace a larger share of past earnings.
Third, an adjustment may be made based on the age at which a beneficiary
chooses to begin receiving payments. For retired workers who claim benefits at
the full retirement age (FRA) and for disabled workers, the monthly benefit
equals the PIA. Retired workers who claim earlier receive lower monthly
benefits, and those who claim later receive higher benefits.
Retired worker benefits can be affected by other adjustments. For example, the windfall
elimination provision can reduce benefits for individuals who receive a pension from non-Social
Security-covered earnings, and benefits can be withheld under the retirement earnings test if an
individual continues to work and earns above a certain amount. Although not an adjustment,
Social Security benefits can be subject to income tax, thereby affecting the beneficiary’s net
income.
Benefits for eligible dependents and survivors are based on the worker’s PIA. For example, a
dependent spouse receives a benefit equal to 50% of the worker’s PIA, and a widow(er) receives
a benefit equal to 100% of the worker’s PIA. Dependent benefits may also be adjusted based on
the age at which they are claimed and other factors.
