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 2018. Case A, born in 1956, retires at age 62. Case B, born in 1952, retires at his normal (or full) retirement age. In each case, we assume the worker has covered earnings from 1978 through 2017, 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 1978 is the average wage for 2016 ($48,642.15) divided by the average wage for 1978 ($10,556.03).

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.


NEXT

Earnings before and after indexing
Year Case A, born in 1956 Case B, born in 1952
Nominal
earnings
Indexing
factor
Indexed
earnings
Nominal
earnings
Indexing
factor
Indexed
earnings
1978 $9,8704.6080$45,481 $17,7004.1987$74,317
1979 10,7674.237345,623 22,9003.861088,416
1980 11,7743.887245,768 25,9003.541991,736
1981 13,0003.531745,912 29,7003.218095,574
1982 13,7583.347446,053 32,4003.050198,822
1983 14,4733.191946,196 35,7002.9084103,830
1984 15,3723.014746,342 37,8002.7469103,833
1985 16,0762.891546,484 39,6002.6347104,333
1986 16,6052.808146,629 42,0002.5587107,466
1987 17,7182.639846,772 43,8002.4053105,353
1988 18,6472.515946,914 45,0002.2924103,159
1989 19,4452.420147,058 48,0002.2051105,845
1990 20,4052.313247,201 51,3002.1077108,127
1991 21,2302.230147,345 53,4002.0320108,510
1992 22,3912.120847,488 55,5001.9325107,251
1993 22,6522.102747,631 57,6001.9160110,360
1994 23,3302.047847,775 60,6001.8659113,073
1995 24,3381.968947,918 61,2001.7940109,792
1996 25,6051.877148,062 62,7001.7103107,239
1997 27,1801.773648,206 65,4001.6160105,689
1998 28,6881.685448,350 68,4001.5357105,040
1999 30,3761.596448,492 72,6001.4546105,605
2000 32,1511.512748,636 76,2001.3784105,033
2001 33,0151.477548,780 80,4001.3463108,240
2002 33,4441.462848,923 84,9001.3329113,163
2003 34,3621.427949,066 87,0001.3011113,195
2004 36,0641.364549,209 87,9001.2433109,286
2005 37,4931.316349,353 90,0001.1994107,947
2006 39,3301.258549,496 94,2001.1467108,019
2007 41,2341.203949,640 97,5001.0969106,950
2008 42,3051.176849,784 102,0001.0723109,370
2009 41,7871.194849,927 106,8001.0887116,270
2010 42,8971.167250,070 106,8001.0635113,586
2011 44,3681.131750,213 106,8001.0312110,135
2012 45,8841.097550,357 110,1001.0000110,100
2013 46,6031.083650,500 113,7001.0000113,700
2014 48,3941.046550,644 117,0001.0000117,000
2015 50,2201.011350,787 118,5001.0000118,500
2016 50,9311.000050,931 118,5001.0000118,500
2017 53,8801.000053,880 127,2001.0000127,200
Highest-35 total  1,705,059Highest-35 total  3,840,699
AIME 4,059 AIME 9,144
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.