Jeffrey Wade
The primary insurance amount (PIA) is the monthly Social Security benefit that a retiree will receive if they claim their benefit at full retirement age. The PIA is calculated based on a retiree's average indexed monthly earnings (AIME), which considers their 35 highest-earning years of work, adjusted for inflation. While the formula for calculating the PIA reflects changes in general wage levels, the dollar amounts used in the calculation change each year. Therefore, the PIA can change over time, but this is not the only factor that determines the amount of Social Security benefit a person will receive. The age at which a person begins receiving benefits can also impact the final monthly benefit amount, with reduced benefits for those who retire before their normal retirement age and increased benefits for those who retire after.
| Characteristics | Values |
|---|---|
| What is the primary insurance amount (PIA)? | The monthly payment someone will receive from Social Security if they claim their benefit at full retirement age. |
| When is the PIA received? | If a person claims their benefit at full retirement age, which is between 66 and 67, depending on the year they were born. |
| How is the PIA calculated? | The PIA is calculated by applying a formula to the average indexed monthly earnings (AIME). |
| What is AIME? | AIME is calculated by taking up to 35 years of the highest earnings of a beneficiary's life and dividing them by the total number of months in each year. |
| How is AIME adjusted for inflation? | AIME is indexed against the national average salary from two years prior. |
| What are bend points? | The dollar amounts in the formula that change annually with changes in the national average wage index. |
| What are the bend points for 2024? | $1,174 and $7,078 |
| What are the fixed percentages of AIME used in the calculation? | 90% of AIME up to the first bend point, 32% of AIME between the bend points, and 15% of AIME above the second bend point. |
What You'll Learn
Calculating the primary insurance amount (PIA)
The primary insurance amount (PIA) is the amount of monthly Social Security benefit paid to a retiree at full retirement age. The PIA is calculated using a person's average indexed monthly earnings (AIME). The AIME is calculated by taking up to 35 years of the highest earnings of a beneficiary's life and dividing them by the total number of months in each year. These wages are indexed against the national average salary from two years prior. This is done to give a fair view of the history of wage growth and to estimate how benefits should increase to cover that growth over the life of the retiree.
Once the AIME has been calculated, it is then plugged into a formula to determine the PIA. This formula is based on "bend points", which are adjusted for inflation each year. The formula for 2024 is as follows:
- 90% of the first $1,174 of AIME
- 32% of AIME over $1,174 but under $7,078
- 15% of monthly earnings over $7,078
The result of this calculation is then rounded down to the next lowest dime, and any inflation adjustments are applied. That number is then rounded down to the next lowest dime again. Finally, any increase or decrease based on age is applied, and the number is rounded down to the nearest dollar.
The PIA is used as the base benefit for calculating how much to pay if someone claims early or delays Social Security beyond full retirement age. If a person files for their retirement benefit prior to their full retirement age, their monthly benefit will be less than the PIA. On the other hand, if they file for their retirement benefit after reaching their full retirement age, their monthly benefit will be greater than the PIA.
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PIA and retirement age
The primary insurance amount (PIA) is the monthly Social Security benefit paid to a retiree at full retirement age. It is calculated based on a person's average indexed monthly earnings (AIME), which takes into account up to 35 years of their highest earnings. The formula used to calculate the PIA reflects changes in general wage levels, as measured by the national average wage index.
The PIA is the basis for the benefits that are paid to an individual. It is important to know your full retirement age, as it affects when you can claim Social Security without reducing your benefits. If you claim your benefits before reaching full retirement age, your monthly benefit will be less than your PIA. On the other hand, if you claim your benefits after reaching full retirement age, your monthly benefit will be greater than your PIA.
Full retirement age varies depending on the year of birth. For those born in 1954, the full retirement age is 66, while for those born in 1960 or later, it is 67. If you claim benefits before reaching full retirement age, you will be subject to early filing penalties that will reduce your benefit. The reduction can be up to 30% if you claim at age 62 with a full retirement age of 67. On the other hand, if you claim benefits after full retirement age, you can earn delayed retirement credits of up to 8% per year until age 70.
The PIA formula consists of three separate percentages of portions of the AIME, known as "bend points". While the percentages are fixed by law, the dollar amounts in the formula change annually based on the national average wage index. For 2024, the PIA formula is as follows:
90% of the first $1,174 of average indexed monthly earnings, plus
32% of average indexed monthly earnings over $1,174 and up to $7,078, plus
15% of average indexed monthly earnings over $7,078.
The AIME is calculated by taking up to 35 years of a person's highest earnings, adjusted for inflation, and dividing them by 420 (the number of months in 35 years). This gives an estimate of real monthly earnings, which is then used in the PIA formula to determine the monthly retirement benefit.
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Average indexed monthly earnings (AIME)
AIME attempts to approximate a lifetime of earnings using today's wage levels as a benchmark. Up to 35 years of earnings are used to compute 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. 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 2024, if an individual's AIME is $7,500, the PIA calculation would take 90% of the first $1,174. It would then take 32% of earnings over $1,174 (and through $7,078) and then take 15% of all monthly earnings over $7,078. In this case, the PIA would be $3,009.10 (as the SSA rounds down to the lowest multiple of $0.10).
The ultimate goal for prospective retirees is to maximize their AIME as the higher your AIME calculation, the higher your retirement benefits.
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Bend points
The dollar amounts in the Primary Insurance Amount (PIA) formula are sometimes called "bend points" because a formula, when graphed, appears as a series of line segments joined at these amounts. The bend points in the PIA formula change annually with changes in the national average wage index.
The PIA is the sum of three separate percentages of portions of the AIME. While the percentages of this PIA formula are fixed by law, the dollar amounts in the formula change annually with changes in the national average wage index. These dollar amounts, called "bend points", govern the portions of the AIME.
For 2024, the bend points are $1,174 and $7,078. The PIA formula for 2024 will be:
90% of the first $1,174 of the AIME
32% of the AIME over $1,174 and through $7,078
15% of the AIME over $7,078
The bend points for 2023 were $1,115 and $6,721.
The bend points make the Social Security benefits program more progressive, helping low-earners replace more of their pre-retirement income. The bend points are an important feature of Social Security, which is designed to help those who need it most.
The Bipartisan Policy Center's Commission on Retirement Security and Personal Savings previously proposed increasing the progressivity of the Social Security benefit formula, boosting the replacement rate (and bend point) for the lowest lifetime earners while reducing it for the highest.
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Maximising the primary insurance amount
Maximising your primary insurance amount (PIA) requires you to earn a high income for 35 years of your career. The PIA is the monthly payment you will receive from Social Security if you claim your benefit at full retirement age. The amount is based on past earnings, adjusted for inflation.
The PIA formula first requires calculating the average indexed monthly earnings (AIME). The AIME takes the average of a person's 35 highest-earning years, adjusted for inflation, and divides this by 12 (the number of months in a year). The inflation index is based on the national average salary from two years prior.
After calculating the AIME, the PIA is based on a percentage of the AIME based on two "bend points". The calculation takes the sum of the following:
90% of AIME up to the first bend point
32% of AIME between the bend points
15% of AIME above the second bend point
For 2023, the bend points were $1,115 and $6,721. The amount is then rounded down to the nearest $0.10 to determine the PIA.
The maximum amount of income that pays Social Security tax changes every year, adjusting for inflation. For 2023, the maximum was $160,200 in taxable wages.
Since the AIME is based on your top 35 years of earnings, it will require you to reach a highly paid position relatively early in life and continue working for a long time.
The PIA is used as the base benefit for calculating how much to pay if someone claims early or delays Social Security beyond full retirement age.
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Frequently asked questions
The primary insurance amount is the monthly payment someone will receive from Social Security if they claim their benefit at full retirement age. The amount is based on past earnings, adjusted for inflation.
The primary insurance amount formula first requires calculating the average indexed monthly earnings (AIME). The AIME takes the average of a person's 35 highest-earning years, adjusted for inflation, and divides it by 12 (the number of months in a year). The inflation index is based on the national average salary from two years prior. After calculating the AIME, the primary insurance amount is based on a percentage of the AIME based on two "bend points".
Maximising the primary insurance amount requires earning a high income for 35 years during your career. There is a maximum amount of income that pays Social Security tax, which changes every year and adjusts for inflation. For 2023, the maximum was $160,200 in taxable wages.
The primary insurance amount is the benefit a person would receive if they elect to begin receiving retirement benefits at their normal retirement age. The average indexed monthly earnings (AIME) is used to determine the primary insurance amount (PIA).
