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For those of you who aren’t quite up to snuff on the carnage that makes up the Social Security retirement benefit calculation, there are a couple of figures that are important to the calculation process called Bend Points. Bend Points are the portions of your average income (Average Indexed Monthly Earnings – AIME) in specific dollar amounts that are indexed each year, based upon an obscure table called the Average Wage Index (AWI) Series. They’re called bend points because they represent points on a graph of your AIME in calculating the PIA, and they actually bend.
If you’re interested in how Bend Points are used, you can see the article on Primary Insurance Amount, or PIA. Here, however, we’ll go over how Bend Points are calculated for each year. To understand this calculation, you need to go back to 1979, the year of the Three Mile Island disaster, the introduction of the compact disc and the Iranian hostage crisis. According to the AWI Series, in 1979 the Social Security Administration placed the AWI figure for 1977 at $9,779.44 – AWI figures are always two years in arrears, so for example, the AWI figure used to determine the 2012 bend points is from 2010.
With the AWI figure for 1977, it was determined that the first bend point for 1979 would be set at $180, and the second bend point at $1,085. I’m not sure how these first figures were calculated – it’s safe to assume that they are part of an indexing formula set forth at that time. At any rate, now that we know these two numbers, we can jump back to 2010’s AWI Series figure, which is $41,673.83. It all becomes a matter of a formula now:
Current year’s AWI Series divided by 1977’s AWI figure, multiplied by the bend points for 1979 equals your current year bend points.
So here is the math for 2012’s bend points:
- $41,673.83 / $9779.44 = 4.2614
- 4.2614 * $180 = $767.05, which is rounded down to $767 – the first bend point
- 4.2614 * $1,085 = $4,623.59, rounded up to $4,624 – the second bend point
And that’s all there is to it. Hope this helps you understand the bend points a little better.