Why is Average Indexed Monthly Earnings [AIME] Important?
The Primary Insurance Amount payable at Full Retirement Age [age 65, 6 months for those born in 1940; age 65 and 8 months for those born in 1941; and increasing to age 67 for those born in 1960 or later] is determined by applying percentages at certain "bend points" to one's Average Indexed Monthly Earnings [AIME]. The bend points change annually. One receives:
90% of the first bend point [Note: The 90% is reduced to a maximum of 40% for those who have a pension from non-covered earnings, e.g. some federal employees, and state and local government employees, including teachers] plus
32% of the second bend point
15% of AIME above the second bend point
The Social Security Statement that is mailed three [3] months prior to one's birthday shows the actual earnings upon which taxes were paid and it projects a Primary Insurance Amount [PIA] based upon an assumption that one's earnings will be the same in the future as for the current year. In doing this, actual earnings are converted to AIME to determine the PIA but the AIME amount isn't shown. One must have the index formulas to determine the Average Indexed Monthly Earnings [AIME] to which the bend points are applied.
The amount of earnings upon which one pays FICA or SECA increases annually. For 2007, the amount is $97,500.00. Since one will only earn 15% for the amount above the second bend point, It is important to know the bend points [which change annually] and one's Average Indexed Monthly Earnings [AIME].
For those who would like to have their AIME computed and an analysis provided, govtbenefits.com will provide a confidential report for a nominal fee.
To obtain additional information or to request an AIME analysis, please send an email to benefits @ govtbenefits.com or complete the AIME Worksheet.