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Primary Insurance Amount

The retirement benefit you would receive if you retire at your normal retirement age is called your primary insurance amount. Your normal retirement age can be found at http://www.ssa.gov/oact/ProgData/nra.html. If you retire earlier than this age (e.g., you are receiving Social Security Disability benefits, which become retirement benefits at your normal retirement age), your primary insurance amount will be reduced. If you retire later than your normal retirement age, this amount will be increased. In other words, your primary insurance amount is the basis for calculating your Social Security Disability benefits if you retire early due to disability, and for calculating your Social Security retirement benefits if you retire at or after your normal retirement age.

Your primary insurance benefit is calculated by a formula that is based on your average indexed monthly earnings, the year in which you begin to receive benefits, and your normal retirement age. If you begin to receive disability benefits or old age benefits in 2011, for example, Social Security’s formula uses three parts to determine “bend points.” The bend points are then multiplied by the average wage index for the year in which you retire. Using the average wage index, the formula is intended to account for the fluctuation in wages over the course of your working life. The average wage index in 1970 was $9,779.44, while the average wage index in 2009 was $40,711.61.

The SSA determines your bend points in three steps. First, the SSA determines 90% of the first $749 of your average indexed monthly earnings. To that number, 32% of your average indexed monthly earnings between $749 and $4,517 is added. To that figure, Social Security adds 15% of your average indexed monthly earnings over $4,517. Social Security rounds that amount to the next lower multiple of $0.10.

Unfortunately, there are many starting points in benefit calculation. The SSA lists six different “normal” computations which may or may not apply to any particular case. Factors introduced into the computation of Social Security Disability or retirement benefits include whether or not the applicant has attained age 22, whether or not a disability benefit freeze was in effect for any of the years being considered, whether or not the applicant is receiving survivor’s benefits at the time he or she becomes eligible for Social Security Disability benefits or retirement benefits, whether or not the applicant has earnings credited to a period prior to the one being considered, whether or not the applicant had any sort of break in entitlement to Social Security Disability benefits, whether he or she has less than six quarters of coverage after 1950, and more.

All of which is to say, the formula for determining your Social Security Disability or retirement benefits amount can be quite convoluted.