Retirement Income Example Calculation
The following is an example of the retirement income calculation for a worker who
received the average American wage over a 35 year periodi. The earnings figure in
column three represents the annual earnings in the particular year. The Inflation index
is the “wage index”ii used by OASI to state historic earnings to current day dollars.
AIME Calculation (Average Indexed Monthly Earnings):
Year
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Workers
Age
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Earnings
In Year
$4,938
$5,213
$5,572
$5,894
$6,186
$6,497
$7,134
$7,580
$8,031
$8,631
$9,226
$9,779
$10,556
$11,479
$12,513
$13,773
$14,531
$15,239
$16,135
$16,823
$17,322
$18,427
$19,334
$20,100
$21,028
$21,812
$22,935
$23,133
$23,754
$24,706
$25,914
$27,426
Wage
Index
8.1820
7.7503
7.2518
6.8556
6.5315
6.2190
5.6639
5.3304
5.0313
4.6815
4.3793
4.1317
3.8277
3.5198
3.2290
2.9337
2.7806
2.6514
2.5042
2.4019
2.3326
2.1928
2.0899
2.0103
1.9215
1.8525
1.7617
1.7467
1.7010
1.6355
1.5592
1.4733
Indexed
Earnings
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
51
52
53
54
55
56
57
58
59
60
61
62
$28,861
$30,470
$32,155
$32,922
$33,252
$34,065
$35,649
$36,953
$38,651
$40,405
$41,335
$0
1.4000
1.3261
1.2566
1.2273
1.2151
1.1861
1.1334
1.0934
1.0454
1.0000
1.0000
0.0000
Total of highest 35 years
Divisor - 420 months
AIME
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$40,405
$41,335
$0
$1,415,121
420
$3,369
PIA (Primary Insurance Amount) – Retirement at age 66, monthly benefit
payment:
First Bend
Second Bend
Third Bend
AIME
PIA at age 62
Rounded to nearest $.10
Bend
Point
$744
$4,483
Excess
AIME
Applied
$744
$4,483
$0
$3,369
Bend
Percent
90%
32%
15%
PIA
$669.60
$840.11
$0
$1,509.71
$1,509.70
PIA – Early Retirement at age 62, monthly benefit payment:
In the example above the worker would receive a pension amount of $1,509.70 if they
retired at age 66, the full retirement age. If the worker continued to work up until age 66
the additional earnings could substitute for past earnings and raise his PIA. If the
worker were to retire early the PIA is reduced by a percentage for each month of early
retirement. The earliest that an individual can receive OASI benefits is at age 62 which
is 48 months early and would cause a reduction to the PIA of 25%. Therefore in the
example above the worker would receive a pension of $1,132.00 which would grow
each year with inflation.
PIA with nonworking spouse of retirement age, monthly benefit payment:
If a worker has a spouse that is also age 66 or older and who did not work enough to
qualify for an OASI benefit, then the PIA amount is raised by 50%. In the above
example, the pension would be raised to $1886.00 and would increase each year with
inflation. The higher benefit would be payable for as long as the couple lived and would
drop down to the initial PIA upon the death of the husband or wife.
i
Retirement benefits of average wage earner, Table 2.A26; Annual Statistical Supplement to the Social Security
Bulletin: 2010, February 2011.
ii
The wage index is determined by OASI by comparing the average earnings for all Americans. Therefore in this
example indexed earnings total $40,500 for each year.