If you have been paying into the Social Security system for a while, you may be wondering how your benefits will be calculated.
One important thing to know is that your benefits are based on your average earnings over your working life. However, if you reach age 62, become disabled, or pass away before age 62, there are certain rules in place that allow for recomputations of your benefits.
Under § 404.284 of the Social Security Administration (SSA) regulations, years of your earnings after 1978 that were not used in the computation of your primary insurance amount (PIA) may be substituted for earlier years of your indexed earnings in a recomputation, but only under the average-indexed-monthly-earnings method. This means that if you have earnings after 1978 that were not taken into account in the initial calculation of your PIA, those earnings can be used to increase your benefits.
It’s important to note that if you are entitled to a monthly pension based on non-covered employment, different rules apply for recomputing your benefits, as outlined in § 404.288.
When recomputing your benefits under the average-indexed-monthly-earnings method, actual dollar amounts, without indexing, are used for earnings not included in the initial computation or earlier recomputation. These later earnings are substituted for earlier years of indexed or actual earnings that are lower.
The formula used in the first computation of your PIA is also used in recomputations of your PIA. The SSA will recompute your PIA by applying the benefit formula to your average indexed monthly earnings as revised to include additional earnings. The SSA then increases the recomputed PIA by the amounts of any automatic cost-of-living or ad hoc increases in primary insurance amounts that have become effective since you reached age 62, became disabled, or died before age 62.
It’s worth noting that your PIA may not be recomputed unless doing so would increase it by at least $1.
Here are a couple of examples to help illustrate how recomputations work:
Example 1: Ms. A’s PIA was computed to be $432.40 in June 1979 based on average indexed monthly earnings of $903. However, she had earnings of $11,000 in 1979 that were not used in the initial computation of her PIA. In this case, her 1979 earnings can be substituted in their actual dollar amount for the lowest year of her indexed earnings that was used in the initial computation. In Ms. A’s case, the $11,000 is substituted for her 1966 indexed earnings of $8,911.36. Her total indexed earnings are now $251,470.05 and her new average indexed monthly earnings are $911. Applying the same benefit formula used in the initial computation results in an amount of $396.00. An automatic cost-of-living increase of 9.9 percent was effective in June 1979, so the SSA increases the $396.00 amount by 9.9 percent to arrive at Ms. A’s recomputed PIA of $435.30. Later, the SSA increased Ms. A’s PIA to $497.60 to reflect the 14.3 percent cost-of-living increase beginning in June 1980, and to $553.40 to reflect the 11.2 percent cost-of-living increase beginning in June 1981.
Example 2: Mr. B’s PIA was computed to be $429.20 in June 1978 based on average monthly wages of $502. However, he had earnings of $12,000 in 1978 that were not used in the initial computation of his PIA. In this case, his 1978 earnings are substituted for the lowest year of earnings used in the initial computation ($2,700 in 1952). Mr. B’s total earnings are now $142,000, and his new average monthly wage is $537. The SSA then finds Mr. B’s new average monthly wage in column III of the December 1978 benefit table in appendix III. Reading across, they find his recomputed PIA on the same line in column IV, which is $407.70. The SSA then applies the 9.9 percent, the 14.3 percent, and the 11.2 percent automatic cost-of-living increases for June 1979, June 1980, and June 1981, respectively, to arrive at Mr. B’s PIA of $569.60.
If recomputing your PIA under the average-indexed-monthly-earnings method would not result in a higher benefit amount, there are guaranteed alternatives that may be available to you, as outlined in § 404.284(f). For example, if you reached age 62 after 1978 and before 1984, the SSA may recomputed your PIA to include earnings for years before the year you reached age 62 by using the guaranteed alternative (§ 404.231). Alternatively, they may recomputed under the old-start guarantee (§ 404.242) or the prior-disability guarantee (§ 404.252) if you meet the requirements of either or both these methods.
In conclusion, if you reach age 62, become disabled, or pass away before age 62 after 1978, the SSA has rules in place for recomputing your primary insurance amount based on additional earnings not included in the initial computation. These recomputations can result in higher benefit amounts, and if the average-indexed-monthly-earnings method does not result in a higher benefit amount, there are guaranteed alternatives that may be available to you. It’s important to understand how these rules work to ensure that you receive the benefits you are entitled to.
https://www.ssa.gov/OP_Home/cfr20/404/404-0284.htm
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