How Are Social Security Benefits Determined?


Quick Answer

The Social Security Administration uses the average indexed monthly earnings of up to 35 years of work to determine benefit amounts, according to its website. This computation allows the SSA to arrive at the primary insurance amount, or PIA, used to determine the basis of benefits for an individual.

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Full Answer

When computing the average indexed monthly earnings, or AIME, the SSA adjusts the index to take into account the rise in the standard of living that occurs over the working lifetime of the individual, according to SSA.gov. The SSA looks at work history and chooses the years that the worker had the highest earnings. There are three sections to the AIME computation, and they make up the primary insurance amount for a particular worker. To determine the benefit amount that a worker qualifies to receive, there are bend points in the formula that change based on current law. For 2015, the primary insurance amounts have bend points that begin at $826 and end at $4,980 for recipients who become eligible in the calendar year.

The SSA publishes a table of benefit examples for workers who have worked since age 22 and paid in the maximum earnings for each year, as stated by its website. The table shows monthly benefit amounts based on AIME and retirement date. For example, according to the table, a worker who retired in the year 2000 at age 62 who had worked steadily since age 22 receives a monthly benefit amount in 2015 of $1,783.

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