Average Indexed Monthly Earnings formula:

\[ \text{AIME} = \frac{\sum \text{Indexed Annual Earnings (highest 35 years)}}{35 \times 12} \]

Process:

1. Index each year's earnings to account for wage inflation
2. Select the 35 highest-earning years
3. Sum those 35 years of indexed earnings
4. Divide by 420 months (35 years × 12 months)

Simplified Example:

If your average annual earnings were $60,000 over 35 years:

\[ \text{AIME} = \frac{60,000 \times 35}{420} = \frac{2,100,000}{420} = \$5,000/\text{month} \]

The 2025 PIA formula uses three "bend points":

\[ \text{PIA} = 0.90 \times A + 0.32 \times B + 0.15 \times C \]

Where (2025 bend points):

• A: First $1,226 of AIME
• B: AIME between $1,226 and $7,391
• C: AIME above $7,391

Progressive Formula: Lower earners receive higher replacement rates

Example: Calculate PIA from AIME of $5,000

Given AIME: $5,000/month

Step 1: First bend point (90% of first $1,226):

\[ 0.90 \times 1,226 = \$1,103.40 \]

Step 2: Second bend point (32% of $1,226 to $5,000):

\[ 0.32 \times (5,000 - 1,226) = 0.32 \times 3,774 = \$1,207.68 \]

Step 3: Third bend point (AIME doesn't exceed $7,391):

\[ 0.15 \times 0 = \$0 \]

Step 4: Total PIA:

\[ \text{PIA} = 1,103.40 + 1,207.68 + 0 = \$2,311.08/\text{month} \]

This is your Full Retirement Age benefit!

Claiming before FRA permanently reduces benefits:

\[ \text{Reduced Benefit} = \text{PIA} \times (1 - \text{Reduction Factor}) \]

Reduction Rates:

• First 36 months early: 5/9 of 1% per month (6.67% per year)
• Beyond 36 months: 5/12 of 1% per month (5% per year)

Example: Claiming at 62 (FRA is 67)

PIA: $2,311/month
Months early: 60 months (5 years)

First 36 months:

\[ 36 \times \frac{5}{9} \times 1\% = 20\% \text{ reduction} \]

Next 24 months:

\[ 24 \times \frac{5}{12} \times 1\% = 10\% \text{ reduction} \]

Total Reduction: 30%

\[ \text{Age 62 Benefit} = 2,311 \times 0.70 = \$1,618/\text{month} \]

Delaying past FRA increases benefits:

\[ \text{Increased Benefit} = \text{PIA} \times (1 + \text{Credit Rate} \times \text{Years Delayed}) \]

Delayed Retirement Credits:

• Rate: 8% per year (2/3 of 1% per month)
• Maximum: Age 70 (no benefit to delaying beyond 70)
• Permanent increase that continues for life

Example: Claiming at 70 (FRA is 67)

PIA: $2,311/month
Years delayed: 3 years

\[ \text{Increase} = 3 \times 8\% = 24\% \]

\[ \text{Age 70 Benefit} = 2,311 \times 1.24 = \$2,866/\text{month} \]

Spouses can claim up to 50% of worker's PIA:

\[ \text{Spousal Benefit} = 0.50 \times \text{Worker's PIA} \]

Rules:

• Worker must have filed for benefits
• Spouse must be at least 62 years old
• Maximum is 50% at spouse's FRA
• Reduced if claimed before spouse's FRA
• Own benefit is paid first; spousal tops up if higher

Example:

Worker's PIA: $2,400/month
Spouse's own benefit: $800/month
Spousal benefit at FRA: $1,200/month (50% of $2,400)

Spouse receives:

\[ \text{Total} = \max(800, 1,200) = \$1,200/\text{month} \]

Social Security benefits increase annually with inflation:

\[ \text{Adjusted Benefit}_n = \text{Initial Benefit} \times \prod_{i=1}^{n} (1 + \text{COLA}_i) \]

Where \( n \) = years since claiming

Example:

Initial benefit (2020): $2,000/month
COLA rates: 2021 (1.3%), 2022 (5.9%), 2023 (8.7%), 2024 (3.2%), 2025 (2.5%)

\[ 2025 = 2,000 \times 1.013 \times 1.059 \times 1.087 \times 1.032 \times 1.025 \]

\[ = 2,000 \times 1.234 = \$2,468/\text{month} \]

Benefit increased by 23.4% over 5 years