The Social Security Administration (SSA) uses your annual earnings from each year you worked and paid Social Security taxes to get your “average monthly earnings” or “AME.” That average is then used to determine what your monthly Social Security Disability (SSD) benefit payment will be.
The SSA looks at your entire earnings history to decide your AME at the time that you become disabled:
- Your older earnings are converted or “indexed” to reflect what they would be in modern pay scales.
- Earnings from more recent years are taken at face value.
- The SSA uses only the highest 35 years of earnings in calculating your AME so that your average is as high as possible.
With older earnings, the SSA converts them into new figures, using inflation in average pay for the kinds of jobs you held in the past. For example, a job that paid you $13,000 a year in 1982 might pay $36,000 per year today. The SSA uses the modern pay amount in calculating your average earnings.
The SSA adds all of your annual earnings from your highest 35 pay years together to get your “lifetime earnings” grand total.
Lifetime earnings are then divided by the number of months in all of the “computation years.” The resulting figure in this calculation is your AME.
Here is an example of how AME is calculated:
You worked and paid Social Security taxes for 25 years.
Your lifetime earnings for those 25 years is $850,000.
There are 12 months in each year, which means there are 300 months total for your 25 years of past employment.
Lifetime Earnings ÷ Total Number of Months of Past Employment = Your AME
$850,000 ÷ 300 = $2,833.33