Social Security Retirement Benefit Calculation

Office of the Chief Actuary

We illustrate the calculation of retirement benefits using two examples, labeled case A and case B. In each case, the worker retires in 2013. Case A, born in 1951, retires at age 62. Case B, born in 1947, retires at his normal (or full) retirement age. In each case, we assume the worker has covered earnings from 1973 through 2012, 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 1973 is the average wage for 2011 ($42,979.61) divided by the average wage for 1973 ($7,580.16).

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 1951			Case B, born in 1947
Year	Nominal earnings	Indexing factor	Indexed earnings	Nominal earnings	Indexing factor	Indexed earnings
1973	$7,087	5.6700	$40,183	$10,800	5.3304	$57,569
1974	7,532	5.3519	40,310	13,200	5.0313	66,414
1975	8,121	4.9797	40,440	14,100	4.6815	66,009
1976	8,708	4.6583	40,564	15,300	4.3793	67,003
1977	9,259	4.3949	40,692	16,500	4.1317	68,173
1978	10,026	4.0716	40,822	17,700	3.8277	67,751
1979	10,936	3.7440	40,945	22,900	3.5198	80,604
1980	11,958	3.4347	41,072	25,900	3.2290	83,630
1981	13,203	3.1205	41,201	29,700	2.9337	87,129
1982	13,972	2.9577	41,325	32,400	2.7806	90,091
1983	14,698	2.8203	41,453	35,700	2.6514	94,655
1984	15,610	2.6637	41,581	37,800	2.5042	94,659
1985	16,324	2.5549	41,706	39,600	2.4019	95,114
1986	16,860	2.4812	41,834	42,000	2.3326	97,971
1987	17,989	2.3325	41,959	43,800	2.1928	96,044
1988	18,932	2.2230	42,086	45,000	2.0899	94,044
1989	19,741	2.1383	42,213	48,000	2.0103	96,493
1990	20,715	2.0439	42,340	51,300	1.9215	98,573
1991	21,552	1.9705	42,468	53,400	1.8525	98,922
1992	22,730	1.8739	42,595	55,500	1.7617	97,775
1993	22,993	1.8580	42,720	57,600	1.7467	100,609
1994	23,680	1.8094	42,847	60,600	1.7010	103,082
1995	24,702	1.7397	42,973	61,200	1.6355	100,091
1996	25,987	1.6586	43,101	62,700	1.5592	97,763
1997	27,584	1.5671	43,227	65,400	1.4733	96,351
1998	29,113	1.4892	43,354	68,400	1.4000	95,759
1999	30,825	1.4106	43,481	72,600	1.3261	96,273
2000	32,625	1.3366	43,608	76,200	1.2566	95,752
2001	33,500	1.3055	43,734	80,400	1.2273	98,676
2002	33,934	1.2925	43,861	84,900	1.2151	103,164
2003	34,864	1.2617	43,988	87,000	1.1861	103,193
2004	36,590	1.2056	44,115	87,900	1.1334	99,629
2005	38,038	1.1631	44,242	90,000	1.0934	98,409
2006	39,900	1.1120	44,368	94,200	1.0454	98,475
2007	41,830	1.0637	44,495	97,500	1.0000	97,500
2008	42,914	1.0398	44,621	102,000	1.0000	102,000
2009	42,387	1.0557	44,748	106,800	1.0000	106,800
2010	43,512	1.0313	44,875	106,800	1.0000	106,800
2011	45,002	1.0000	45,002	106,800	1.0000	106,800
2012	46,876	1.0000	46,876	110,100	1.0000	110,100
Highest-35 total			1,505,835	Highest-35 total		3,391,104
AIME			3,585	AIME		8,074

Note: Nominal earnings for case B are limited by the contribution and benefit base for all years. Case B is an example of a person who has earned at or above the maximum taxable amount in each year.

Benefit Calculation Examples for Workers Retiring in 2013