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 2017. Case A, born in 1955, retires at age 62. Case B, born in 1951, retires at his normal (or full) retirement age. In each case, we assume the worker has covered earnings from 1977 through 2016, 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 1977 is the average wage for 2015 ($48,098.63) divided by the average wage for 1977 ($9,779.44).

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 1955 Case B, born in 1951
Nominal
earnings
Indexing
factor
Indexed
earnings
Nominal
earnings
Indexing
factor
Indexed
earnings
1977 $9,1444.9183$44,973 $16,5004.3949$72,516
1978 9,9014.556545,114 17,7004.071672,067
1979 10,8014.190045,256 22,9003.744085,739
1980 11,8113.843845,399 25,9003.434788,958
1981 13,0403.492245,538 29,7003.120592,680
1982 13,8013.310045,681 32,4002.957795,830
1983 14,5183.156245,822 35,7002.8203100,686
1984 15,4192.981045,964 37,8002.6637100,689
1985 16,1262.859246,107 39,6002.5549101,174
1986 16,6562.776846,250 42,0002.4812104,212
1987 17,7722.610346,390 43,8002.3325102,163
1988 18,7042.487846,531 45,0002.2230100,035
1989 19,5042.393046,673 48,0002.1383102,640
1990 20,4672.287446,815 51,3002.0439104,853
1991 21,2942.205246,957 53,4001.9705105,224
1992 22,4592.097147,100 55,5001.8739104,004
1993 22,7202.079347,241 57,6001.8580107,019
1994 23,4002.024947,383 60,6001.8094109,650
1995 24,4111.946947,525 61,2001.7397106,468
1996 25,6811.856147,666 62,7001.6586103,991
1997 27,2611.753847,809 65,4001.5671102,489
1998 28,7731.666547,951 68,4001.4892101,859
1999 30,4661.578648,093 72,6001.4106102,407
2000 32,2461.495848,235 76,2001.3366101,852
2001 33,1121.461048,376 80,4001.3055104,962
2002 33,5421.446548,518 84,9001.2925109,737
2003 34,4621.412048,659 87,0001.2617109,768
2004 36,1701.349248,802 87,9001.2056105,976
2005 37,6021.301648,943 90,0001.1631104,678
2006 39,4441.244449,085 94,2001.1120104,749
2007 41,3531.190449,227 97,5001.0637103,711
2008 42,4271.163649,369 102,0001.0398106,058
2009 41,9071.181449,511 106,8001.0557112,750
2010 43,0201.154249,652 106,8001.0313110,146
2011 44,4951.119149,795 106,8001.0000106,800
2012 46,0151.085249,936 110,1001.0000110,100
2013 46,7351.071550,078 113,7001.0000113,700
2014 48,5311.034850,219 117,0001.0000117,000
2015 50,3621.000050,362 118,5001.0000118,500
2016 51,5771.000051,577 118,5001.0000118,500
Highest-35 total  1,684,304Highest-35 total  3,714,380
AIME 4,010 AIME 8,843
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.