U.S. social security PIA calculations

Under both the PIA operator and the PIA calculations tool, ProVal calculates the Social Security Primary Insurance Amount (PIA) under the new wage-indexed method prescribed by the 1977 Amendments to the Social Security Act. The transitional guarantee, special minimum PIA and other special or transitional rules (such as the rules applicable, for purposes of determining the period over which earnings are averaged, to men born in 1912 or earlier) are not reflected.

You may calculate either a retirement PIA (old-age benefit for a fully insured worker beginning at about age 62 or later) or a disability PIA (for a disabled disability insured worker under full, aka social security normal, retirement age). The discussion of the retirement PIA calculation follows immediately. The differences between the retirement and disability PIA calculations are discussed (in a separate section) at the end of this article.

The calculation is done according to a four-step process:

Determine Average Indexed Monthly Earnings (AIME).
Determine the “formula PIA”, by multiplying the components of the AIME by 90%, 32%, or 15%.
Apply in sequence all CPI increases starting with age 62.
Apply reductions (increases) for early (late) retirement.

The following discussion provides details for each step.

Basis of calculation:

Note: For purposes of PIA calculations under (only) the PIA tool, age is based on the actual date of birth minus one day. Therefore, the year of birth for someone born on January 1 is the year preceding the calendar year of birth. See Title 20 of the Code of Federal Regulations (CFR) Section 404.2(c)(4).

Social Security Normal Retirement Age (SSNRA: ranges from 65 to 67, depending on the year of birth). See Section 216(l)(1) of the Social Security Act for details.
Year of decrement (the year of retirement, termination, disablement or death).
Year of computation (the year social security benefit payment commences; for example, if the Computation Age is specified as 65 under the Computation Age & Law Year topic of a PIA custom operator, then the year of computation is the year of attaining age 65. The corresponding parameter for the PIA tool is labeled “Commencement” and is found under the Employee Data topic of a PIA tool).
Year of attaining age 62 (YEAR62).
Year of attaining age 60 (YEAR60).
Frozen law year (if any).

Step 1: Determine Average Indexed Monthly Earnings (AIME)

a) Averaging period

First, count the number of years after 1950 (or after year of attaining age 21, if later) and before YEAR62. The averaging period is this value minus 5, but not more than 35.

b) Complete the following table for years after 1950 up to the computation year:

(A)	(B)	(C)	(D)	(E)	(F)	(G)
				National
Calendar	Projd.	Wage	Covered	Average	Index	Indexed
Year	Salary	Base	Earnings	Wage	Factor	Earnings
1951		3,600		2,799.16
1952		3,600		2,973.32
...

where, for each year in the table:

(B) is the salary history and projected salaries, determined by parameters of the Salaries topic of the PIA operator or by parameters of the Employee Data and Salary Projection topics of the PIA tool.

(C) is the wage base from ProVal’s historical regulatory data for calendar years up to and including the year of the valuation date (PIA operator) or the law year (PIA tool), a projected wage base for years thereafter up to and including the decrement year (PIA operator) or the termination year (PIA tool), and a level wage base for years thereafter through the last year in the table. See the Technical Reference article entitled U.S. social security wage base for more information, including details of wage base projection.

(D) is the smaller of (B) or (C).

(E) is the National Average Wage from ProVal’s historical regulatory data for calendar years up to and including 2 years prior to the year of the valuation date (PIA operator) or the law year (PIA tool), a projected National Average Wage for calendar years thereafter up to and including 2 years prior to the decrement year (PIA operator) or the termination year (PIA Tool), and a level National Average Wage thereafter through the last year in the table. See the Technical Reference article entitled “U.S. social security wage base” for more information, including details of wage base projection.

(F) is the ratio of the National Average Wage for YEAR60 to the National Average Wage for the year of that row in the table (both from column (E)).

(G) is (D) multiplied by (F).

If there is a frozen law year, then the following columns are modified:

(B) is level or zero salaries from the frozen law year through the last year in the table.

(E) is level National Average Wages from 2 years before the frozen law year through the last year in the table.

c) Total of largest Indexed Earnings

Total the largest Indexed Earnings in column (G) of the table above, counting only that number of entries stated in (1)(a).

d) AIME

Divide the amount in (1)(c) by the averaging period in (1)(a). Make it a monthly amount by dividing by 12. Finally, round this number down to a whole number of dollars.

Step 2: Determine the formula PIA by multiplying the components of the AIME by 90%, 32%, or 15%.

a) Formula bend points

Determine the lower and upper PIA bend points for YEAR62. These are determined by comparing the National Average Wage for YEAR60 with the comparable figure for 1977 and applying the resulting ratio to the 1979 bend points ($180 and $1,085). The updated bend points are rounded to the nearest whole dollar. For persons born prior to 1917, the 1979 bend points are used.

b) PIA per formula

Use the bend points in (2)(a) to multiply components of the AIME by 90%, 32% or 15%. For example, if the lower bend point is $437 and the upper bend point is $2,635, then the formula PIA is:

90% of the first $437 of AIME, plus

32% of AIME between $437 and $2,635, plus

15% of AIME in excess of $2,635.

Round this amount down to the nearest dime ($0.10).

Step 3: Apply in sequence all CPI increases starting with age 62.

a) CPI factors

Determine the CPI factors to apply, starting with those for YEAR62 and ending the year before the computation year (or the year before the decrement year / termination year or the law freeze year, if either is earlier). (In any case, CPI increases are not provided after decrement / termination.)

b) PIA after CPI increases

Apply CPI increases to the formula PIA in (2)(b), rounding down to the nearest dime ($0.10) after applying each increase.

Step 4: Apply reductions (increases) for early (late) retirement.

a) Early retirement factor

The reduction is 5/9 of 1% (1/180 th) per month for each of the first 36 months that computation age is prior to SSNRA.

The reduction is 5/12 of 1% (1/240 th) per month for each of the next 24 months that computation age is prior to SSNRA.

b) Late retirement factor

The increase is a tabulated monthly value, depending on the year of birth, applied for each month by which the computation age (limited to age 70) exceeds SSNRA.

c) PIA at computation age

Apply the early (late) retirement factor in (4)(a) or (4)(b) to the PIA in (3)(b). Round this amount down to the nearest dollar, then annualize by multiplying by 12.

Disability PIA calculation

The calculation of a retirement PIA (old-age benefit for a fully insured worker beginning at about age 62 or later) is described above. A disability PIA (for a disabled disability insured worker under full, aka social security normal, retirement age) is computed as described above, except for the differences noted below.

Note that, for a disability PIA calculation:

For decrement ages (PIA operator) or termination ages (PIA tool) before social security normal retirement age (SSNRA), the computation age parameters (PIA operator) and commencement parameters (PIA tool) are ignored, because the computation age or commencement age is the same as the decrement age or termination age, respectively.
For decrement ages / termination ages at or after SSNRA, a retirement PIA (not a disability PIA) is calculated. Therefore two of the computation age / commencement age parameters are relevant, and thus their settings are “honored”. These parameters are the Decrement age if later (PIA operator) / Termination if later (PIA Tool) parameter and the Reduce (increase) PIA for early/late commencement parameter. The calculations will reflect a computation age / commencement age of SSNRA if the Decrement age if later (PIA operator) box or Termination if later (PIA Tool) box is not checked and will reflect a computation age / commencement age equal to the (later) decrement age if the box is checked. Furthermore, if this box is checked, delayed retirement credits will be granted if the Reduce (increase) PIA for early/late commencement box is also checked.

The parameters for salaries after decrement (PIA operator) or after termination (PIA tool) are also irrelevant for a PIA disability calculation and thus ignored.

ProVal’s methodologies for the retirement PIA and disability PIA are compared in this chart:

	Retirement	Disability
Earnings after decrement / termination	Several options	Decrement year / termination year and later salaries are not used or considered.
Elapsed years	*Year attaining age 62 minus year of attaining age 22 (but nothing before 1951 is considered).	Year of disability minus year of attaining age 22, limited to retirement elapsed years (but nothing before 1951 is considered).
Drop years	5	Disability elapsed years divided by 5, truncated, but no more than 5.
Averaging period	Elapsed years minus drop years, maximum of 35 years.	Same as retirement, but with a 2 year minimum.
Early retirement reductions	Allowed (optional)	None
Delayed retirement credits	Allowed (optional)	Allowed (optional). At or after SSNRA, a disability PIA is calculated under the retirement PIA methodology.

*The actual determination of elapsed years for the retirement PIA is (YOB+62)-1951 rather than (YOB+62) – MAX (1951, YOB+22). This simplified calculation works because the averaging period is limited to 35 years and because now "every" active is born after 1929 (and thus turns age 22 after 1951).