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 2014. Case A, born in 1952, retires at age 62. Case B, born in 1948, retires at his normal (or full) retirement age. In each case, we assume the worker has covered earnings from 1974 through 2013, 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 1974 is the average wage for 2012 ($44,321.67) divided by the average wage for 1974 ($8,030.76).

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 1952 Case B, born in 1948
Nominal
earnings
Indexing
factor
Indexed
earnings
Nominal
earnings
Indexing
factor
Indexed
earnings
1974 $7,5095.5190$41,442 $13,2005.1471$67,941
1975 8,0955.135241,570 14,1004.789267,527
1976 8,6814.803741,701 15,3004.480068,545
1977 9,2304.532141,832 16,5004.226769,741
1978 9,9944.198741,962 17,7003.915869,309
1979 10,9033.861042,096 22,9003.600882,458
1980 11,9213.541942,223 25,9003.303285,554
1981 13,1623.218042,355 29,7003.001189,134
1982 13,9303.050142,488 32,4002.844592,163
1983 14,6532.908442,617 35,7002.712496,833
1984 15,5622.746942,748 37,8002.561896,836
1985 16,2752.634742,879 39,6002.457197,302
1986 16,8092.558743,010 42,0002.3863100,224
1987 17,9352.405343,139 43,8002.243298,254
1988 18,8752.292443,269 45,0002.137996,207
1989 19,6822.205143,401 48,0002.056598,713
1990 20,6532.107743,531 51,3001.9657100,841
1991 21,4872.032043,662 53,4001.8951101,198
1992 22,6621.932543,793 55,5001.8022100,024
1993 22,9251.916043,924 57,6001.7869102,923
1994 23,6101.865944,054 60,6001.7402105,454
1995 24,6301.794044,186 61,2001.6731102,394
1996 25,9111.710344,317 62,7001.5951100,012
1997 27,5031.616044,446 65,4001.507198,567
1998 29,0281.535744,577 68,4001.432297,962
1999 30,7351.454644,707 72,6001.356698,488
2000 32,5301.378444,839 76,2001.285597,955
2001 33,4031.346344,969 80,4001.2555100,946
2002 33,8361.332945,100 84,9001.2431105,537
2003 34,7641.301145,231 87,0001.2134105,567
2004 36,4851.243345,362 87,9001.1595101,921
2005 37,9291.199445,492 90,0001.1186100,673
2006 39,7861.146745,623 94,2001.0694100,740
2007 41,7111.096945,754 97,5001.023099,743
2008 42,7921.072345,884 102,0001.0000102,000
2009 42,2671.088746,015 106,8001.0000106,800
2010 43,3891.063546,146 106,8001.0000106,800
2011 44,8751.031246,276 106,8001.0000106,800
2012 46,4071.000046,407 110,1001.0000110,100
2013 47,0681.000047,068 113,7001.0000113,700
Highest-35 total  1,551,588Highest-35 total  3,500,823
AIME 3,694 AIME 8,335
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.