Q. I've heard that the Social Security benefit I'll get at 62 will be calculated based on my five best years of work. Is this true? If not, how will my benefits be calculated?

A. Social Security benefits have never been based on a 5-year average. That's a common misconception. For everyone born in 1929 or later, Social Security retirement benefits are based on a worker's best 35 years of earnings--not just the best five.

The first step in computing Social Security benefits is taken every February. That's when every employer in the country sends W-2 forms for every employee in the country to the Social Security Administration.

Social Security uses those W-2s to maintain individual earnings records for 135 million wage earners in the United States. (The earnings of self-employed people are tracked by use of Schedule SE from their personal tax returns.)

When a worker applies for benefits, Social Security's computers adjust his or her earnings record for inflation: Each year of earnings is multiplied by a factor to make the earnings of the past count more in the benefit computation formula-because the dollars of the past were worth more than the dollars of today. The jargon for this adjustment is "indexing".

Next, the highest 35 years of earnings are selected. Those are frequently the last 35 years worked. But they don't have to be. They aren't necessarily 35 consecutive years either: Years with low earnings are skipped if there are 35 better years on the earnings record.

The best 35 years are averaged and divided by twelve. The result is called the Average Indexed Monthly Earnings or AIME.

Social Security applies a three-part formula to the AIME to determine the "full" benefit amount. For example, for someone who turns 62 in 2003, the formula is 90 percent of the first $606 of AIME, plus 32 percent of the next $3047 of the AIME, plus 15 percent of the remaining AIME. Social Security automatically adjusts this formula each year so average retirees receive benefits that replace about 42 percent of their pre-retirement earnings.

The three-part formula makes Social Security benefits a better deal for low-income workers. Although it is true that higher earnings result in higher benefits, lower-than-average earners get extra help--that's always been one of the basic principles of Social Security.

Benefits are available as early as age 62, but the monthly amount is permanently reduced if a worker starts receiving before "full-retirement age". Full-retirement age varies according to the individual worker's year of birth:

Birth-year         Full-retirement age        Age-62 %

before 1938         65                              80% of full-benefit

1938         65 plus 2 months               79.1%

1939         65 plus 4 months               78.3%

1940         65 plus 6 months               77.5%

1941         65 plus 8 months               76.6%

1942         65 plus 10 months             75.8%

1943-1954                     66                           75%

1955          66 plus 2 months               74.1%

1956          66 plus 4 months                73.3%

1957          66 plus 6 months               72.5%

1958          66 plus 8 months                71.6%

1959          66 plus 10 months              70.8%

after 1959                  67                           70%