CALCULATING THE AMOUNT OF YOUR MONTHLY SOCIAL SECURITY BENEFITS

To determine the amount of a person's monthly cash benefit, SSA uses the following four-step process:

1. Calculate each worker's average indexed monthly earnings (AIME). First, the worker's annual covered earnings after 1950 are indexed to reflect the general earnings level in the indexing year--the second calendar year before the year of eligibility (that is, the year a worker becomes disabled, reaches age 62, or dies). Earnings in years after the indexing year are not indexed but instead are counted at their actual value.
   
   The period used to calculate the AIME equals the number of full calendar years elapsing between age 21 and the year of first eligibility. The actual years used in the computation are the years of highest earnings after the 5 lowest years of earnings have been excluded. The AIME is calculated as the sum of the highest year's earnings, divided by the number of months in the computation period.
    
2. Compute the primary insurance amount (PIA). The formula used to compute the PIA from the AIME is weighted to provide a higher PIA-to-AIME ratio for workers with low earnings. For workers who reach age 62, become disabled, or die in 2001, the PIA is equal to the sum of:
   
   90 percent of the first $561 of AIME, plus
   32 percent of the next $2,820 of AIME,
   plus 15 percent of AIME over $3,381.
   
   When subsequent retirement benefits are computed at conversion to retired-worker benefits at the full retirement age (FRA), or at retirement for a worker who earlier recovered from a disability, the years of disability are disregarded from the PIA calculation. That preserves insured status and benefit level.
   
   Alternative methods of computing the PIA apply to workers who have low earnings but a steady work history over most of their adult years and to workers who also receive a pension based on their own noncovered work.
    
3. Compute the family maximum (FMAX). Monthly benefits payable to the worker and family members or to the worker's survivors are limited to a maximum family benefit amount. The family maximum level for retired-worker families or survivors usually ranges from 150 percent to 188 percent of the worker's PIA. The maximum benefit for disabled-worker families ranges from the smaller of 85 percent of AIME (or 100 percent of the PIA, if larger) to about 150 percent of the PIA.
   
   Beginning with the first year of eligibility, the PIA and FMAX are increased by cost-of-living adjustments.
    
4. Compute the person's monthly benefit amount (MBA). Disabled workers and persons retiring at the FRA are paid 100 percent of the PIA. The PIA is reduced for workers who retire between age 62 and the FRA. If a disabled worker receives reduced retirement benefits before disability entitlement, the disability benefit is reduced by the number of months for which he or she received reduced retirement benefits.
   
   Dependents of retired or disabled workers may receive up to 50 percent of the PIA. Disabled adult children of deceased workers may receive up to 75 percent of the PIA.
   
   Disabled widow(er)s aged 50-60 may receive up to 71.5 percent of the PIA. Disabled widow(er)s aged 60 to the FRA may receive up to 100 percent of the PIA, but benefits are reduced for age, with a maximum reduction of 28.5 percent.
   
   All monthly benefits are limited by the family maximum, so dependents may not receive their full MBA.

Source: The Social Security Administration.

See also: Security Benefits Amounts.