Average Indexed Monthly Earnings (AIME): Meaning, Overview, FAQ

By
Julia Kagan
Julia Kagan
Full Bio

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Learn about our editorial policies
Updated October 23, 2022
Reviewed by
Marguerita Cheng
Marguerita Chen headshot
Reviewed by Marguerita Cheng
Full Bio

Marguerita is a Certified Financial Planner (CFP®), Chartered Retirement Planning Counselor (CRPC®), Retirement Income Certified Professional (RICP®), and a Chartered Socially Responsible Investing Counselor (CSRIC). She has been working in the financial planning industry for over 20 years and spends her days helping her clients gain clarity, confidence, and control over their financial lives.

Learn about our Financial Review Board
Fact checked by
Amanda Jackson
Amanda Jackson
Fact checked by Amanda Jackson
Full Bio
Amanda Jackson has expertise in personal finance, investing, and social services. She is a library professional, transcriptionist, editor, and fact-checker.
Learn about our editorial policies

What Are Average Indexed Monthly Earnings (AIME)?

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. Those top-earning years are then indexed to factor in wage growth and averaged to produce a 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) are used to calculate a person's Social Security benefits.
  • Up to 35 years of earnings are used to compute average indexed monthly earnings (AIME).
  • The first year a person is eligible for benefits, which is 62 for retirees, is the starting point for determining indexed earnings.
  • In calculating primary insurance amounts, AIME is split into three parts, which are then computed into a total monthly benefit.

Understanding Average Indexed Monthly Earnings (AIME)

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 2023, if the individual's AIME is $6,900, the PIA calculation would take 90% of the first $1,115. It would then take 32% of earnings over $1,115 (and through $6,721) and then take 15% of all monthly earnings over $6,721. In this case, the PIA would be $2,824.20 (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. 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 Wage Inflation

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

  • 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 first year a recipient is eligible to receive benefits. For retirement, eligibility is at age 62.
  • A recipient's earnings are indexed to the average wage level two years prior to the first year of eligibility. So, for example, if an individual is first eligible in 2023 when they turn 62, then the earnings would be indexed to the average wage index of 2021.
  • "Earnings in a year before 2021 would be multiplied by the ratio of 60,575.07 to the average wage index for that year; earnings in 2021 or later would be taken at face value."

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.

How Do You Calculate Average Indexed Monthly Earnings (AIME)?

To calculate AIME, up to 35 years of earnings are needed. The years with the highest indexed earnings are chosen. These earnings are then added up and then divided by the total number of months in those years. The amount is then rounded down to the next lower dollar amount.

What Is the Average Social Security Benefit per Month?

In September 2022, the average Social Security benefit was $1,547.87. The number of beneficiaries was 65.79 million.

What Are Indexed Earnings for Social Security Purposes?

Indexed earnings for Social Security is how the Social Security Administration determines a person's Social Security benefits. Up to 35 years of earnings are indexed, with the highest years being chosen. The earnings are divided by the total months in those years to arrive at one's average indexed monthly earnings (AIME).

Correction—Jan. 30, 2022: A previous version misstated how wages are indexed in AIME calculations.

Correction—Feb. 16, 2022: A previous version of this article misstated the process in which wages are indexed in calculating AIME.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. Social Security Administration. "Social Security Benefit Amounts."

  2. Social Security Administration. "Primary Insurance Amount."

  3. Social Security Administration. "Social Security Act: Computation of Primary Insurance Amount."

  4. Social Security Administration. "Program Operations Manual System (POMS)."

  5. Social Security Administration. "Indexing Factors for Earnings."

  6. Social Security Administration. "Monthly Statistical Snapshot, September 2022."

Open a New Bank Account
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Sponsor
Name
Description