Office of the Chief Actuary

# Benefit Calculation Examples for Workers Retiring in 2008

We illustrate the calculation of retirement benefits using two examples, labeled case A and case B. In each case, the worker retires in 2008. Case A, born in 1946, retires at age 62. Case B, born in 1942, retires at his normal (or full) retirement age. In each case, we assume the worker has covered earnings from 1968 through 2007, as shown at right in columns labeled "nominal earnings."

Indexing brings nominal earnings up to near-current wage levels. For each case, the table shows columns of earnings before and after indexing. Between these columns is a column showing the indexing factors. A factor will always equal one for the year in which the person attains age 60 and all later years. The indexing factor for a prior year Y is the result of dividing the average wage index for the year in which the person attains age 60 by the average wage index for year Y. For example, the case-A indexing factor for 1968 is the average wage for 2006 (\$38,651.41) divided by the average wage for 1968 (\$5,571.76).

We use the highest 35 years of indexed earnings in a benefit computation. The dropped indexed amounts are shown in red. 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). The next step is to calculate benefits based on AIME amounts.

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Earnings before and after indexing
Year Case A, born in 1946 Case B, born in 1942
Nominal
earnings
Indexing
factor
Indexed
earnings
Nominal
earnings
Indexing
factor
Indexed
earnings
1968 \$5,2106.9370\$36,142 \$4,5415.9680\$27,101
1969 5,5286.558036,253 5,1775.641929,208
1970 5,8216.248036,369 5,7355.375230,827
1971 6,1325.949036,480 6,2905.118032,192
1972 6,7545.418136,594 7,1644.661233,393
1973 7,1995.099036,708 7,8604.386734,480
1974 7,6514.812936,824 8,5684.140635,477
1975 8,2484.478236,937 9,4503.852736,408
1976 8,8444.189237,049 10,3443.604037,280
1977 9,4033.952337,164 11,2073.400238,106
1978 10,1813.661537,278 12,3463.150138,891
1979 11,1063.367037,394 13,6852.896739,641
1980 12,1433.088837,507 15,1892.657340,362
1981 13,4062.806337,621 17,0052.414341,055
1982 14,1872.659937,736 18,2332.288341,723
1983 14,9232.536337,849 19,4182.182042,370
1984 15,8482.395537,964 20,8632.060942,996
1985 16,5722.297638,076 22,0601.976643,605
1986 17,1152.231438,190 23,0231.919744,196
1987 18,2612.097638,304 24,8111.804644,773
1988 19,2181.999138,419 26,3591.719945,334
1989 20,0381.923038,533 27,7351.654445,884
1990 21,0251.838138,646 29,3551.581346,420
1991 21,8731.772138,760 30,7941.524546,946
1992 23,0681.685238,875 32,7351.449847,460
1993 23,3341.670938,988 33,3671.437547,963
1994 24,0311.627239,103 34,6161.399948,458
1995 25,0671.564539,217 36,3641.345948,943
1996 26,3691.491539,330 38,5141.283249,420
1997 27,9891.409339,445 41,1471.212449,888
1998 29,5391.339239,559 43,7011.152150,349
1999 31,2751.268539,673 46,5521.091350,803
2000 33,0991.202039,786 49,5581.034151,249
2001 33,9861.174039,901 51,1751.010051,688
2002 34,4241.162440,014 52,1221.000052,122
2003 35,3661.134640,128 53,8341.000053,834
2004 37,1161.084240,242 56,7881.000056,788
2005 38,5831.046040,356 59,3281.000059,328
2006 40,4701.000040,470 62,5311.000062,531
2007 42,4851.000042,485 65,9531.000065,953
Highest-35 total  1,354,530Highest-35 total  1,632,723
AIME  3,225AIME  3,887
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