Primary Insurance Amount - PIA

Primary insurance amount or PIA is the result of a calculation used to determine the Social Security benefits amount that would be paid out to an eligible retiree at full retirement age.

The primary insurance amount cannot be determined until after calculating the Average Indexed Monthly Earnings (AIME). The AIME is calculated by taking up to 35 years of the highest earnings of a beneficiaries life and dividing them by 12. These wages are indexed against the national average salary from two years prior. This is done to give a fair view of the history of wage growth and to estimate how benefits should increase to cover that growth over the life of the retiree.

Once the AIME has been adjusted to show this range, the PIA calculation can be completed. The government takes three different percentages of the AIME and adds them together. The percentages are fixed at 90 percent, 32 percent and 15 percent, however the dollar amounts used in the calculation change each year. These dollar amounts are called bend points and can be found on the Social Security Administration’s website, along with the table for eligible retirement ages and maximum family benefit formulas.  

For example, an eligible retiree would determine their full retirement age based on the year that they were born. Assume that a person born in 1953 would retire at age 66. To calculate their AIME, they would first write down their earnings from each working year, and then pull out the 35 highest-earning years. From there, the calculation can be completed by adding the 35 annual salaries together and then dividing that sum by 420, which is the number of months in 35 years. Using this retiree’s information as an example, we estimated a combined total sum of $1,575,000. This accounts for an annual salary of $45,000 for 35 years, divided by 420 months, which equals an AIME of $3,750 a month. Using this number, the calculation for the PIA can now be completed.

As of 2018, the PIA calculation takes 90 percent from the first $895, 32 percent from earnings over $895 but under $5,397, and 15 percent of monthly earnings over $5,397. In this example the PIA would be $1,719 after being rounded down to the nearest whole dollar.

All of these calculations are performed internally by the Social Security Administration and can be completed on their website by entering accurate earning figures and age variables. Having the knowledge of what goes into the calculation can help one better understand how Social Security obtains these figures and how much an individual's annual earnings would need to be over a lifetime in order to reach a desired monthly retirement benefit.