Social Security benefits are based on your lifetime earnings. Your actual earnings are adjusted or “indexed” to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most.
How is Social Security disability benefits calculated?
Social Security benefits are typically computed using “average indexed monthly earnings.” This average summarizes up to 35 years of a worker’s indexed earnings. We apply a formula to this average to compute the primary insurance amount (PIA).
How to calculate your Social Security benefits step by step?
To do this calculation, there are only four steps. 1 Adjust all earnings for inflation. 2 Calculate your Average Indexed Monthly Earnings (AIME) 3 Apply your AIME to the benefit formula to determine primary insurance amount (PIA) 4 Adjust PIA for filing age.
How is the annual limit for Social Security calculated?
This annual limit of included wages is called the Contribution and Benefit Base and is shown as Max Earnings in Column H in the table. Social Security uses a process called wage indexing to determine how to adjust your earnings history for inflation. Each year, Social Security publishes the national average wages for the year.
How are indexed earnings calculated for Social Security?
Below the indexed earnings are the sums for the highest 35 years of indexed earnings and the corresponding average monthly amounts of such earnings. (The average is the result of dividing the sum of the 35 highest amounts by the number of months in 35 years.) Such an average is called an “average indexed monthly earnings” (AIME).
How does Social Security take your highest earning years?
The Social Security Administration takes your highest-earning 35 years of covered wages and averages them, indexing for inflation. They give you a big fat “zero” for each year you don’t have earnings, so people who worked for fewer than 35 years may see lower benefits.
