One of the key components of determining your Social Security retirement benefit is called the Average Indexed Monthly Earnings, or AIME (don’t you just love the acronym-loving Social Security Administration? Errr… SSA.). The AIME is calculated by taking the highest-earning (by index) 35 years of your working life while covered by Social Security, and then computing an average monthly amount based upon those indexed amounts.
Gobbledy-gook, right? Okay, here’s another way to explain it: as you work in a Social Security insured job, your earnings are recorded each year. Each year the SSA applies an index to the year, based upon cost of living adjustments (COLAs) that have been put in place for the new year. These indexes for each year of your earnings will be adjusted with each new year, reflecting the new COLA applied.
Once you are eligible for retirement (age 62, your Earliest Eligibility Age, or EEA), these years of earnings are put into a table and the indexes applied. Listed below is an example of an earnings table with indexes applied:
Average Indexed Monthly Earnings
| Age | Earnings | Index | Indexed Earnings |
| 22 | $ 5,000.00 | 7.4186559 | $37,093.28 |
| 23 | $ 5,589.41 | 7.0133446 | $39,200.47 |
| 24 | $ 5,771.91 | 6.6817598 | $38,566.51 |
| 25 | $ 5,951.90 | 6.362084 | $37,866.51 |
| 26 | $ 6,259.69 | 5.794243 | $36,270.16 |
| 27 | $ 6,598.18 | 5.453047 | $35,980.19 |
| 28 | $ 6,724.29 | 5.147081 | $34,610.48 |
| 29 | $ 7,263.44 | 4.789173 | $34,785.89 |
| 30 | $ 7,652.52 | 4.480037 | $34,283.57 |
| 31 | $ 8,151.79 | 4.226722 | $34,455.35 |
| 32 | $ 8,771.10 | 3.915769 | $34,345.61 |
| 33 | $ 9,095.79 | 3.600777 | $32,751.90 |
| 34 | $ 9,809.52 | 3.303241 | $32,403.21 |
| 35 | $10,300.66 | 3.001138 | $30,913.71 |
| 36 | $11,796.26 | 2.84454 | $33,554.93 |
| 37 | $12,072.71 | 2.712404 | $32,746.07 |
| 38 | $13,417.50 | 2.561809 | $34,373.08 |
| 39 | $15,014.39 | 2.457123 | $36,892.20 |
| 40 | $16,488.37 | 2.386295 | $39,346.11 |
| 41 | $17,578.53 | 2.243234 | $39,432.76 |
| 42 | $19,816.33 | 2.137938 | $42,366.08 |
| 43 | $20,064.41 | 2.056512 | $41,262.70 |
| 44 | $22,795.36 | 1.965713 | $44,809.12 |
| 45 | $25,440.98 | 1.895091 | $48,212.98 |
| 46 | $26,801.49 | 1.802233 | $48,302.53 |
| 47 | $27,536.23 | 1.786866 | $49,203.55 |
| 48 | $30,992.15 | 1.740161 | $53,931.33 |
| 49 | $34,893.01 | 1.673097 | $58,379.40 |
| 50 | $36,396.83 | 1.595089 | $58,056.18 |
| 51 | $36,936.43 | 1.507145 | $55,668.58 |
| 52 | $41,035.24 | 1.432187 | $58,770.12 |
| 53 | $42,533.74 | 1.356586 | $57,700.69 |
| 54 | $45,383.43 | 1.285498 | $58,340.33 |
| 55 | $50,034.62 | 1.255546 | $62,820.74 |
| 56 | $51,454.51 | 1.243079 | $63,962.02 |
| 57 | $55,140.29 | 1.213416 | $66,908.14 |
| 58 | $61,014.02 | 1.159513 | $70,746.57 |
| 59 | $64,329.16 | 1.118584 | $71,957.57 |
| 60 | $67,170.90 | 1.06943 | $71,834.56 |
| 61 | $73,383.51 | 1.023004 | $75,071.63 |
| 62 | $82,983.83 | 1 | $82,983.83 |
| Average of top 35 years | $49,898.35 | ||
| Monthly Average | $4,158.20 |
So what this table shows is that your wages earned in each year you were working have been indexed to compare with the current year’s earnings, then the top 35 indexed earnings years are averaged and divided by 12 to come up with the Average Indexed Monthly Earnings – your very own AIME.
With this table in mind, you can see how the AIME can increase if you continue working past age 62 – of course those earnings will be added to the table, and assuming that this knocks out one of your lower earning years, the average would increase.
And, as you might guess, this AIME isn’t the amount of retirement benefit that you can expect: more factors need to be applied to come up with your PIA, and then your actual retirement age is applied to that.
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I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author
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