Educational information, not individual financial advice.
Key Takeaways
The Social Security benefit formula is piecewise linear — three segments with decreasing slopes. The points where the slope changes are called bend points. They're the reason Social Security replaces a much higher fraction of income for low earners than for high earners.
For workers first eligible for benefits in 2026 (those turning 62 in 2026):
These figures are published annually by the SSA based on wage indexing. Once you turn 62, the bend points that applied that year are locked in for your benefit calculation for life — even if you delay claiming until 70.
The PIA formula using 2026 bend points:
This produces dramatically different replacement ratios at different income levels:
| AIME | PIA | Replacement ratio |
|---|---|---|
| $1,000 | $900 | 90% |
| $2,000 | $1,386 | 69% |
| $4,000 | $2,026 | 51% |
| $6,000 | $2,666 | 44% |
| $8,000 | $3,283 | 41% |
| $11,000 | $3,745 | 34% |
| $15,000 | $4,345 | 29% |
(AIME is monthly, so $8,000/month = $96,000/year salary, approximately.)
The system is intentionally progressive. A worker with $30,000/year AIME gets a 69% replacement ratio; a worker with $180,000/year gets about 29%.
The bend points rise each year based on the National Average Wage Index. As nominal wages grow, the tiers widen proportionally so that the progressive structure is maintained over time.
Historical bend points (first / second):
Growth in nominal bend points has tracked wage growth, not price inflation, which means the system's real purchasing power is roughly stable over time.
Your bend points are determined by the year you first become eligible (age 62) — not the year you actually claim. A worker turning 62 in 2026 uses the 2026 bend points for their PIA calculation, even if they wait until 70 to claim.
This means two workers with identical earnings histories who happen to turn 62 in different years can have slightly different PIAs, with the person who turned 62 later usually getting a slightly higher PIA due to wage index growth.
A few implications:
High earners: Social Security is relatively less important. With replacement ratio around 30% for max earners, Social Security covers a smaller fraction of pre-retirement income. More of the plan depends on the portfolio.
Low earners: Social Security is relatively more important. With replacement ratio around 70–90%, Social Security covers most of pre-retirement income. The portfolio plays a smaller role.
Delaying benefits is most valuable for people already near the top of their tier. If you're already past the second bend point, another year of high earnings barely moves PIA. Delaying the claim (8%/year) moves it much more.
The progressive structure favors households with one high earner and one non-earning (or low-earning) spouse. The low-earning spouse can claim spousal benefits (up to 50% of the higher earner's PIA at FRA), which effectively gives them a replacement ratio based on the household's combined earnings rather than just their own.
Horizons applies the correct bend points based on your birth year and projected earnings history. The PIA calculation in the engine mirrors SSA's formula, including the progressive structure. When comparing claiming strategies, you see not just the headline benefit but the specific dollars generated by each tier.
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