Indexing

• Each year has an index going back as far as 1951 and Social Security indexes the years by multiplying by the index figure to calculate present value. For example, it indexes 1970 dollars at 6.58 to arrive at present value for 2010 so the $1,000 you earned in 1970 counts as $6,580 in 2010. These calculations change by year for the retirement age of the recipient.
  
  

AIME

• Social Security uses 35 years of work to arrive at average indexed monthly earnings calculations for individuals born before 1948. This figure uses your indexed annual income for each year, adds it all together and divides by 420 or the number of months in 35 years. Round down to the nearest dollar. This figure is the AIME.
  
  

PIA

• The PIA formula has three bend points, or three different percentages applied to the AIME to give the low-income worker an advantage. Bend points change each year, but the percentage does not. The first figure calculates 90 percent of the AIME up to $761 in 2010 and $749 in 2010. The second figure uses 32 percent of the next $3,825 or $3,768 in 2011. The third figure, if there is one, is 15 percent of AIME over $4,586 in 2010 or $4,517 in 2011. Round down to the nearest 10 cents for the PIA. Many workers have to calculate only 90 percent of the first $761 to arrive at PIA, as that is their monthly average benefit over a lifetime of earnings.
  
  

Use of PIA

• Social Security calculates PIA to age 60 for most workers and makes adjustments based on the cost of living for years after that until the worker retires. This allows retirees to benefit from the cost of living increases or changes in the cost of living. Social Security pays the full PIA to workers who wait until full retirement age to collect benefits. Individuals born between 1943 and 1954 reach full retirement age at 66. Social Security bases all benefits on that work history at a percentage of the PIA. A spouse at age 62 receives 35 percent of the worker's PIA. The spouse of a deceased worker receives 71.5 percent of the worker's PIA at age 60, and a minor child receives 75 percent of the deceased worker's PIA.