I'll have to check with the SS admin to see if this 35 year averaging thing is correct. It would be good to know this for sure.
Ed_B
You are absolutely correct about the highest 35 years of earnings being used to calculate benefits. If you do not have 35 years of earnings, you just use $0 for those years. The calculation is quite convoluted. It goes something like this:
You are credited for the highest 35 years of earnings up to the "social security maximum". In 2001, that value was $80,400. In 1965 the value was $4800. Past year earnings are normalized to 2001 dollars using an index factor. So for 2001, the factor is 1.00, and for 1965 the factor was 6.90. Each year in-between has its own factor based on some inflationary value for the times.
The indexed earnings for the 35 years are summed together, then divided by 420 to get the average monthly earning.
So for the first $592 of average monthly earning you get 90%;
between $593 and $3566 monthly earning you get 32%;
and for $3567 and above, you get 15%.
This would determine the starting monthly social security payment for a 65 year old receiving full benefits. If you started receiving benefits at 62, the recipient would only get 77.5% of the starting amount.
So depending on where your average monthly earnings were relative to the $3567 value, the credit you receive drops off pretty quickly.
This information was based on some research done many months ago based on values through 2001. If I can find the web link that explains this in more detail I will post it as an update to the message.
Red