Step 2: Adjust for Inflation
Adjust the earnings for earlier years to reflect inflation.- table- changes every year The indexing year is normally the year you turn 60.If you die or become disabled before age 62, the indexing year will be two years before the year of your death or disability.
Step 3: Select the 35 Highest Years
Select the 35 highest years based on the inflation-adjusted amounts.If you don't have 35 years with earnings, the calculation will include some years with zero earnings.
Step 4: Find the Monthly Average
Add up all the inflation-adjusted amounts for the 35 years that were selected and divide by 420.This is known as your
average indexed monthly earnings
(AIME).The calculation uses a smaller number of years for someone who dies or becomes disabled before age62.
Step 5: The Benefits Formula
3-tier formula: An AIME of less than $749 means $0.90 in benefits for each $1 of AIME$749 to $4,517 means $0.32 in benefits for each $1 of AIMEover $4,517 means $0.15 in benefits for each $1 of AIME
How SS works: simple model
People live for two periods- young work - old retiredPopulation growth is 5% per year.Productivity growth is 5% per year.Consider 5 total periods.2