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 2016. Case A, born in 1954, retires at age 62. Case B, born in 1950, retires at his normal (or full) retirement age. In each case, we assume the worker has covered earnings from 1976 through 2015, 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 1976 is the average wage for 2014 ($46,481.52) divided by the average wage for 1976 ($9,226.48).

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 1954 Case B, born in 1950
Nominal
earnings
Indexing
factor
Indexed
earnings
Nominal
earnings
Indexing
factor
Indexed
earnings
1976 $8,6275.0378$43,461 $15,3004.5168$69,106
1977 9,1734.753043,599 16,5004.261470,313
1978 9,9324.403343,734 17,7003.947969,877
1979 10,8354.049143,872 22,9003.630383,134
1980 11,8483.714544,010 25,9003.330386,255
1981 13,0813.374844,146 29,7003.025789,864
1982 13,8443.198744,283 32,4002.867992,919
1983 14,5633.050144,419 35,7002.734697,627
1984 15,4672.880844,557 37,8002.582897,630
1985 16,1752.763144,692 39,6002.477398,100
1986 16,7072.683444,832 42,0002.4059101,046
1987 17,8262.522544,967 43,8002.261699,059
1988 18,7612.404145,104 45,0002.155596,996
1989 19,5642.312645,243 48,0002.073499,522
1990 20,5292.210545,379 51,3001.9818101,668
1991 21,3592.131045,517 53,4001.9106102,027
1992 22,5272.026645,654 55,5001.8170100,844
1993 22,7892.009345,791 57,6001.8015103,767
1994 23,4701.956845,927 60,6001.7544106,318
1995 24,4841.881446,064 61,2001.6868103,233
1996 25,7581.793746,202 62,7001.6082100,832
1997 27,3421.694846,339 65,4001.519599,375
1998 28,8581.610546,476 68,4001.443998,765
1999 30,5561.525546,613 72,6001.367799,296
2000 32,3401.445646,749 76,2001.296098,758
2001 33,2091.411946,887 80,4001.2658101,773
2002 33,6401.397947,024 84,9001.2533106,403
2003 34,5631.364547,161 87,0001.2234106,433
2004 36,2751.303947,298 87,9001.1690102,757
2005 37,7111.257947,435 90,0001.1278101,498
2006 39,5581.202647,572 94,2001.0782101,566
2007 41,4731.150447,710 97,5001.0314100,561
2008 42,5491.124547,847 102,0001.0082102,836
2009 42,0271.141747,983 106,8001.0236109,324
2010 43,1431.115448,120 106,8001.0000106,800
2011 44,6221.081548,258 106,8001.0000106,800
2012 46,1461.048748,395 110,1001.0000110,100
2013 46,8681.035548,532 113,7001.0000113,700
2014 48,6691.000048,669 117,0001.0000117,000
2015 50,2111.000050,211 118,5001.0000118,500
Highest-35 total  1,628,054Highest-35 total  3,593,696
AIME 3,876 AIME 8,556
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.