Key Takeaways
- Social Security’s Oct. 26 notice put 2025’s national average wage at $72,800.33. It also set 2027’s benefit formula: 90% of the first $1,340 of average monthly earnings, 32% up to $8,077 and 15% above that.
- A worker who becomes eligible next year and whose 35 best years each match that average wage would get $2,718.50 a month at full retirement age. That’s 45% of the $6,066.69 a month the benefit is based on.
- A worker who earned half the average wage would get $1,747.80 a month, or 58% of their pay.
- Claiming at 62 cuts the benefit 30% for life, which would leave the average worker with 31% of their pay.
If you’re counting on Social Security to replace your paycheck once you retire, I have some sobering news.
On Oct. 26, the Social Security Administration published its yearly notice in the Federal Register. It gave 2025’s national average wage index of $72,800.33 and the 2027 “bend points” of the formula that turns a lifetime of pay into a monthly check. Put the two together, and the average American worker who becomes eligible next year is in for a 55% pay cut.
A $6,066.69 paycheck becomes a $2,718.50 check
Let’s take a hypothetical worker who turns 62 next year, the first year they can claim. Their 35 best years of indexed earnings each come to 2025’s average wage of $72,800.33, which is $6,066.69 a month.
Full retirement age is 67 for anyone born in 1960 or later. At 67, this worker gets $2,718.50 a month, 45% of the pay their benefit is based on.
Which, ouch.
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How Social Security gets to $2,718.50
A retirement benefit starts from average indexed monthly earnings. Social Security takes up to 35 years of a worker’s earnings, indexes them to wages, picks the highest years and averages them by the month. That average then goes through a formula set by the year the worker first becomes eligible. For a worker first eligible in 2027, Social Security’s benefit formula pays:
- 90% of the first $1,340 of average monthly earnings
- 32% of the amount over $1,340, up to $8,077
- 15% of anything above $8,077
Our worker’s $6,066.69 never reaches the top band. Here’s the math:
- 90% of the first $1,340 is $1,206.
- The $4,726.69 between $1,340 and $6,066.69, at 32%, adds $1,512.54.
- That totals $2,718.54, which Social Security rounds down to the dime: $2,718.50.
That’s the benefit at 67, before any cost-of-living raises. Those raises start in the year the worker first becomes eligible.
A lower earner keeps a bigger share of pay
Social Security pays its highest rate on the first dollars of earnings. So it replaces a bigger share of pay the less a worker earned.
Take a second hypothetical worker, the same age, whose 35 best years each come to half the average wage. That’s $3,033.35 a month. They get the same $1,206 on the first $1,340, and 32% of the $1,693.35 above that adds $541.87. After rounding down to the dime, the benefit is $1,747.80 a month.
That’s 58% of this worker’s pay. They earned half as much as our average worker but get 64% as much from Social Security.
It works the other way for high earners. Above $8,077 a month in average indexed earnings, or $96,924 a year, each extra dollar adds just 15 cents to the benefit.
Claiming at 62 makes the cut deeper
Our average worker can start benefits next year at 62. But for anyone born in 1960 or later, claiming at 62 cuts the benefit 30% for life. That would take $2,718.50 down to about $1,903 a month before cost-of-living raises: 31% of the pay it replaces. Waiting until 67 gets the full $2,718.50.
Working longer can help too. Social Security uses only the 35 highest years, so a better-paid year late in a career replaces a weaker year in the average.
Of course, few real careers match the average wage every single year. Your own benefit comes from your own 35 best years, run through the same formula.
These bend points stay with this worker for life
For the average worker, Social Security covers less than half the paycheck. I’d plan for savings, a pension or more years of work to cover the rest, and I’d think hard before claiming at 62, when the check covers less than a third.
Bend points are locked in by the year a worker first becomes eligible. So a worker first eligible in 2027 keeps $1,340 and $8,077 whenever they claim, with cost-of-living raises added on top. Workers first eligible in 2028 will get a new set of bend points in next fall’s notice.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
