When it comes to calculating your Social Security benefits, the Social Security Administration (SSA) uses one of the formulas outlined in Appendix II to Subpart C of Part 404.
The appropriate formula is based on the year you reach age 62, become disabled, or die before age 62.
For example, if you reach age 62 or become disabled or die before age 62 in 1979, the formula used to compute your primary insurance amount (PIA) is 90 percent of the first $180 of your average indexed monthly earnings (AIME), plus 32 percent of the next $905 of your AIME, and 15 percent of your AIME over $1,085. The formula for subsequent years varies slightly, with different dollar amounts for each step.
Once the SSA has calculated the amount for each step in the formula, they add them together. If the total is not already a multiple of $0.10, they round the total up or down, depending on the year.
It’s important to note that the formulas in Appendix II to Subpart C of Part 404 are subject to change over time. For example, the formula for those who reach age 62, become disabled, or die before age 62 in 2021 may be different from the formulas listed in the appendix.
Understanding how your Social Security benefits are calculated can be complicated, but it’s important to have a clear understanding of the formulas used by the SSA. This knowledge can help you make informed decisions about your retirement planning and ensure that you receive the benefits you are entitled to.
Example: Let’s say that John was born in 1957 and plans to retire at age 62 in 2019. To calculate John’s primary insurance amount (PIA), the SSA would use the benefit formula for those who reach age 62 in 2019.
According to Appendix II to Subpart C of Part 404, the formula for those who reach age 62 in 2019 is 90 percent of the first $926 of AIME, plus 32 percent of the next $4,653 of AIME, and 15 percent of AIME over $5,579.
Let’s say that John’s AIME is $3,000. To calculate John’s PIA, the SSA would first calculate 90 percent of the first $926, which is $833.40. They would then calculate 32 percent of the next $2,074 ($3,000 minus $926), which is $663.68. Finally, they would calculate 15 percent of the amount over $5,579, which is $0 because John’s AIME is less than $5,579.
The SSA would then add together the three amounts: $833.40 + $663.68 + $0 = $1,497.08. Since this amount is already a multiple of $0.10, the SSA would not need to round it up or down.
Therefore, John’s PIA would be $1,497.08 per month if he chooses to retire at age 62 in 2019. Keep in mind that this is just an example, and John’s actual PIA would depend on a number of factors, including his actual AIME and when he chooses to retire.
https://www.ssa.gov/OP_Home/cfr20/404/404-app-c02.htm
At Hugo Fierro & Michael Perez, our team of experienced professionals is dedicated to providing comprehensive guidance and support in navigating the complexities of Social Security Disability claims. We are committed to ensuring that you have a thorough understanding of the process, eligibility criteria, and your rights in order to maximize the benefits you are entitled to receive.