To simplify the explanation, the Average Indexed Monthly Earnings (AIME) is a calculation used to determine your Social Security benefits.
It takes into account your earnings history in order to estimate the benefits you will receive when you retire or become disabled.
https://www.ssa.gov/OP_Home/cfr20/404/404-0211.htm
Here’s a breakdown of the process:
- Earnings used: Social Security earnings from employment or self-employment after 1950 are used. Earnings before 1951 are not considered.
- Computation base years: The years used in the calculation are all years from 1950 up to the year you become eligible for Social Security benefits (old-age or disability insurance). The years you become entitled to benefits and following years can be used to recalculate your benefits if it would result in a higher amount.
- Average of total wages: The average wage for each year from 1951 up to the second year before you become eligible is used. This average wage is computed using different methodologies for different time periods, as described in the original text.
- Indexing your earnings: Your earnings are adjusted for inflation by comparing the average wage in the year your earnings were received to the average wage in the indexing year (generally, the second year before you become eligible for benefits). This calculation results in indexed earnings for each year.
- Number of years to be considered: The number of years used in the AIME calculation depends on your age and the type of benefits you are eligible for. Generally, for old-age and survivor benefits, the calculation uses the highest earnings from a certain number of years after indexing, with 5 years removed from the total number of years considered.
After these steps are completed, the AIME is calculated by adding up the indexed earnings from the selected years and dividing the sum by the total number of months in those years. This results in your Average Indexed Monthly Earnings, which is then used to calculate your Social Security benefits.
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