The Social Security Administration uses an earnings record to calculate your social security benefits. This earnings record is also called a work record and it spans the length of your professional life and all the income you’ve accumulated. The SSA then uses three steps to calculate your benefits.
Step one: Your earnings are adjusted for historical changes in U.S. wages. 35 of your best-paid years are used to produce your average indexed monthly earnings (AIME). Income that hits the maximum taxable amount is counted after considering the annually adjusted cap on how much of your earnings are subject to social security taxes. In 2021, the maximum taxable earnings are capped at $142,800.