Social Security benefits are calculated using Average Indexed Monthly Earnings (AIME), based on the best 35 years of inflation-adjusted wages. The benefit formula applies three rates to AIME, with bend points that reduce the replacement rate as earnings rise. For 2026, 90% applies up to about $1,226 of AIME, 32% applies between about $1,226 and about $7,391, and 15% applies above about $7,391. High earners also face a wage base cap, so earnings above the annual maximum do not count toward AIME or payroll taxes. As a result, a $50,000 lifetime earner receives about $2,044 per month at full retirement age, while a $200,000 earner receives about $3,730 per month, replacing a smaller share of pre-retirement income.
"For 2026, the formula credits 90% of AIME up to roughly $1,226, then 32% of AIME between $1,226 and about $7,391, then just 15% of anything above that second bend point. Those breakpoints, called bend points, are where the math turns against high earners."
"Here is how it plays out in real dollars at full retirement age of 67: A $50,000 lifetime earner has an AIME near $4,167, producing a benefit of about $2,044 a month. Social Security replaces roughly half their working income. A $100,000 earner has an AIME near $8,333, producing about $3,217 a month. The replacement rate drops sharply. A $200,000 earner is capped by the Social Security wage base at $184,500, giving an AIME near $11,750 and a benefit of about $3,730 a month."
"Two forces drive this. Every dollar above the second bend point earns only 15 cents of benefit. Wages above the annual cap do not count toward AIME or payroll taxes. A $200,000 salary and a $400,000 salary produce the same"
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]