What Are Average Indexed Monthly Earnings?

Average indexed monthly earnings (AIME) are used to calculate the primary insurance amount (PIA), which is used to determine an individual's Social Security benefits. AIME works by taking into consideration the 35 years that represent an individual's top earnings, all the way up to age 60, for that person. AIME then indexes those top-earning years to factor in wage growth and then calculates an average monthly figure.

More simply stated, AIME attempts to approximate a lifetime of earnings using today's wage levels as a benchmark.

Key Takeaways

  • Average indexed monthly earnings (AIME) is used to calculate a person's Social Security benefits.
  • AIME evaluates 35 years representing an individual's top earnings, up to age 60, then indexes those years to factor in wage growth.
  • In calculating primary insurance amounts, AIME is split into three parts, which are then computed into a total monthly benefit.

Average Indexed Monthly Earnings Explained

In order to calculate the PIA, the average indexed monthly earnings (AIME) is split into three parts. Predetermined percentages are applied to each part, and they are all summed together to get the PIA. If someone receives Social Security benefits, the number they use to calculate that benefit is from the primary insurance amount (PIA).

For example, for 2021, if the individual's AIME is $6,500, the PIA calculation would take 90% from the first $996. It would then take 32% from earnings over $996 (but under $6,002), and then take 15% of all monthly earnings over $6,002. In this case, the PIA would be $2,573 (as the SSA rounds down to the lowest multiple of $0.10).

AIME Calculation

The Social Security Administration (SSA) uses the PIA calculation because of Title II of the Social Security Act, under the 1978 New Start Method. Each calendar year, each covered worker with wages up to the Social Security wage base (SSWB) is recorded. Making the calculation for Social Security benefits starts by looking at how long you worked and how much you made each year during your 35 highest-earning years.

1. Start with a list of your earnings each year

Earnings history is shown on a Social Security statement, which is available online. Only earnings below a specified annual limit are included. This annual limit of included wages is called the contribution and benefit base.

2. Adjust each year of earnings for inflation

Social Security uses a two-step process called wage indexing to determine how to adjust earnings history for inflation:

  • Each year, Social Security publishes the national average wages for the year, a list that's available on the National Average Wage Index page.
  • Wages are indexed to the average wages for the year someone turns 60. For each year, divide average wages of the indexing year (which is the year you turn 60) by average wages for the year being indexed. Then, multiply included earnings by this number.

For someone under age 62, the calculation will only be an estimate. Until average wages for the year someone turns 60 is known, there is no way to do an exact calculation. However, it is possible to attribute an assumed inflation rate to estimate the average wages.

3. Use the highest 35 years of indexed earnings to calculate the monthly average

The Social Security benefits calculation uses the highest 35 years of someone's earnings to calculate their average monthly earnings. If someone doesn't have 35 years of earnings, a zero will be used in the calculation, which will lower the average. Total the highest 35 years of indexed earnings and divide this total by 420 (the number of months in a 35-year work history). The result is a person's AIME.