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 2015. Case A, born in 1953, retires at age 62. Case B, born in 1949, retires at his normal (or full) retirement age. In each case, we assume the worker has covered earnings from 1975 through 2014, 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 1975 is the average wage for 2013 ($44,888.16) divided by the average wage for 1975 ($8,630.92).

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 1953 Case B, born in 1949
Nominal
earnings
Indexing
factor
Indexed
earnings
Nominal
earnings
Indexing
factor
Indexed
earnings
1975 $8,0705.2009$41,971 $14,1004.7169$66,509
1976 8,6544.865142,103 15,3004.412567,511
1977 9,2014.590142,233 16,5004.163068,689
1978 9,9634.252442,366 17,7003.856768,264
1979 10,8693.910342,501 22,9003.546581,214
1980 11,8853.587242,634 25,9003.253484,264
1981 13,1223.259142,766 29,7002.955987,790
1982 13,8873.089142,898 32,4002.801690,773
1983 14,6082.945643,029 35,7002.671595,372
1984 15,5142.782043,160 37,8002.523295,376
1985 16,2252.668343,294 39,6002.420195,835
1986 16,7582.591443,427 42,0002.350398,713
1987 17,8812.436143,559 43,8002.209496,772
1988 18,8182.321743,690 45,0002.105794,756
1989 19,6232.233343,824 48,0002.025597,224
1990 20,5912.134743,955 51,3001.936199,320
1991 21,4232.058044,088 53,4001.866599,672
1992 22,5941.957244,220 55,5001.775198,516
1993 22,8571.940544,353 57,6001.7599101,371
1994 23,5401.889744,485 60,6001.7139103,863
1995 24,5571.816944,618 61,2001.6479100,849
1996 25,8341.732244,750 62,7001.571098,504
1997 27,4221.636744,882 65,4001.484497,081
1998 28,9431.555345,015 68,4001.410696,484
1999 30,6461.473245,148 72,6001.336197,003
2000 32,4351.396045,279 76,2001.266196,478
2001 33,3061.363545,412 80,4001.236699,424
2002 33,7381.349945,544 84,9001.2243103,946
2003 34,6631.317745,676 87,0001.1951103,975
2004 36,3801.259245,809 87,9001.1420100,384
2005 37,8201.214745,941 90,0001.101799,154
2006 39,6721.161446,073 94,2001.053399,221
2007 41,5921.110946,206 97,5001.007698,239
2008 42,6701.086046,338 102,0000.9849100,462
2009 42,1471.102646,471 106,8001.0000106,800
2010 43,2661.077146,603 106,8001.0000106,800
2011 44,7481.044446,735 106,8001.0000106,800
2012 46,2761.012846,867 110,1001.0000110,100
2013 47,0001.000047,000 113,7001.0000113,700
2014 49,1261.000049,126 117,0001.0000117,000
Highest-35 total  1,572,877Highest-35 total  3,492,021
AIME 3,744 AIME 8,314
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.