One of the key components that the Social Security Administration uses to calculate your Social Security retirement benefit is called the Average Indexed Monthly Earnings, or AIME (don’t you just love the acronym-loving Social Security Administration?  Errr… SSA.). The AIME is calculated by taking the highest-earning (by index) 35 years of your working life while covered by Social Security and then computing an average monthly amount based upon those indexed amounts. 

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Gobbledy-gook, right?  Okay, here’s another way to explain it:  as you work in a Social Security insured job, your earnings are recorded each year. Each year the SSA applies an index to the year, based upon an index called the Average Wage Index, and yours is based on the year you’ll reach age 62. These indexes for each year of your earnings will be adjusted with each new year, reflecting the change from when your earnings were recorded in comparison to the year you reach age 62.

Once you are eligible for retirement (age 62, your Earliest Eligibility Age, or EEA), these years of earnings are put into a table and the indexes applied.  Listed below is an example of an earnings table with indexes applied (keep in mind this is an example for a specific age – your own indexes will likely be different):

Average Indexed Monthly Earnings

So what this table shows is that your wages earned in each year you were working have been indexed to compare with the Average Wage Index for your age 62 years, then the top 35 indexed earnings years are totaled and divided by 420 to come up with the Average Indexed Monthly Earnings – your very own AIME. The reason they’re divided by 420 is that this is the number of months in 35 years. The AIME is always produced by dividing the top 35 years by 420, even if there are fewer than 35 years in the table (such as if you had years without earnings).

With this table in mind, you can see how the AIME can increase if you continue working past age 62 – of course, those earnings will be added to the table (but not indexed after age 62), and assuming that this knocks out one of your lower earning years, the average would increase.

And, as you might guess, this AIME isn’t the amount of retirement benefit that you can expect:  more factors need to be applied to come up with your PIA, and then your actual retirement age is applied to that.