How Are Social Security Benefits Calculated?
For people who are close to retiring, one of the most popular questions is “how is the Social Security benefit being calculated?” This is a vital question to ask since the answer affects how long you need to work so that they could take full advantage of the Social Security benefit. However, it is important that you know that the Social Security Administration sends out mail every year, around your birthday, to provide you with your current Social Security benefit estimate. Additionally, the Social Security administration has provided different calculators on their website. It will provide you with a current estimate on your Social Security benefit. The calculations are built in so that you do no have to complicate yourself on how the actual calculations are made. However, it is still best that you know how they actually calculate your benefit. That’s what this article is all about.
Social Security Benefit Calculations
Your monthly benefits are basically calculated by adding the top 35 years during the time you are employed. The numbers are adjusted with the inflation index, and then the number is averaged. You'll arrive at your yearly benefit; divide it by 12 to determine your monthly benefits. For cases that a person has worked less than 35 years, the number zero is supplemented for those missing years. That is why it is better to work for at least 35 years to maximize the calculations, and to maximize your monthly benefits.
AIME and PIA
AIME stands for Average Indexed Monthly Earnings. This is the number that is derived from the averaged the last 35 years income, the number is also adjusted for inflation. AIME is very important since is used to determine you PIA or Primary Insurance Amount. PIA is basically a full-unreduced benefit amount you are going to receive monthly if you have reached your full retirement age.