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Benefit Calculation Examples for Workers Retiring in 2008

Primary Insurance Amount

The basic Social Security benefit is called the primary insurance amount (PIA). Typically the PIA is a function of average indexed monthly earnings (AIME). We determine the PIA by applying a PIA formula to AIME. The formula we use depends on the year of first eligibility (the year a person attains age 62 in retirement cases).
Formula bend points
Case AIME First Second Formula applied to AIME
A $3,225$711$4,288 .9(711) + .32(3225 - 711) = $1,444.38
B 3,8876123,689 .9(612) + .32(3689 - 612) + .15(3887 - 3689) = $1,565.14

Because the worker in case A retires in 2008, and 2008 is the year in which the worker is first eligible for benefits, the case-A PIA is the case A amount computed above truncated to the next lower dime, or $1,444.30.

The worker in case B is first eligible in 2004 (the year case B reached age 62). Thus the case-B PIA is the case B amount computed above truncated to the next lower dime and increased by cost-of-living adjustments, or COLAs, for 2004 through 2007. These COLAs are 2.7 percent, 4.1 percent, 3.3 percent, 2.3 percent, respectively. The resulting PIA is $1,768.00.

Benefit based on PIA and age

The amount of retirement benefits paid depends on a person's age when he or she begins receiving benefits. We reduce benefits taken before a person's normal (or full) retirement age and we increase benefits taken after normal retirement age.
We assume the worker in case A begins receiving benefits at the earliest possible age, which is age 62. Because case A's normal retirement age is 66 years, the benefit amount for case A is reduced for 48 months of early retirement. The $1,444.30 PIA is thus reduced to a monthly benefit of $1,083.00.

The benefit amount for case B, assuming that benefits begin exactly at normal retirement age of 65 years and 10 months, is not reduced except for rounding down to the next lower dollar. The $1,768.00 PIA is thus equal to a monthly benefit of $1,768.00.

We also have benefit examples for workers whose earnings have equalled or exceeded maximum taxable amounts. These examples show AIME and benefit amounts for retirement at ages 62, 65, and 70.

Other methods

Two other methods for computing a PIA are described at right. Relatively few new beneficiaries qualify for these two other methods.


Special Minimum Benefits
We pay "special minimum" benefits to certain individuals who've had long periods of relatively low earnings. To qualify for such benefits, a person must have at least 11 "years of coverage". To earn a year of coverage, a person must earn at least a certain proportion (25 percent for years before 1991, and 15 percent for years after 1990) of the "old-law" contribution and benefit base. Tables showing the range of special minimum primary insurance amounts and corresponding maximum family benefit amounts are available.

Old-law Benefit Tables
For persons eligible before 1979, benefits are based on average earnings rather than average indexed earnings. We determine the PIA for such beneficiaries from a benefit table. We update this table annually to reflect

Such benefit tables for eligibility before 1979, also called old-law benefit tables, are available beginning with the table for 1959. U.S. Government portal Privacy Policy  | Website Policies & Other Important Information  | Site Map
Last reviewed or updated December 27, 2007