In order to understand Social Security, you should understand a number of key terms.

Primary insurance amount (PIA): The primary insurance amount is the basic unit used to express the amount of a worker’s benefit. Benefits are expressed as a percentage of a worker’s PIA. The calculation of a worker’s PIA is based on the average indexed monthly earnings (AIME). The PIA is the amount that a worker is entitled to receive at full retirement age. The PIA is based on the worker’s average earnings during his or her time of employment, and the PIA is subject to certain adjustments, which are beyond the scope of this section.

Average indexed monthly earnings (AIME): Your average indexed monthly earnings are your lifetime earnings adjusted for inflation. To find your AIME, you must adjust each year’s earnings total to reflect the value the earnings would have in the year in which you contributed and hence are eligible for benefits. Earnings are adjusted (or indexed) to reflect the changes in general wage levels caused by inflation. A worker’s AIME expresses the amount of the worker’s earnings in terms of the earnings’ current dollar value.

Full retirement age (FRA): The full retirement age is the age at which retirees will receive 100 percent of the benefits (PIA) to which they are entitled. If individuals choose to receive benefits prior to reaching the FRA, they will receive a reduced amount of benefits.  Individuals can begin receiving benefits as early as age 62.   If individuals choose to delay receiving benefits until after they reach the FRA, they will receive an increased amount of benefits. The full retirement age is calculated in Table 28.3.

 

Table 28.3

Full Retirement Age:

Birth Year	Year at Age 62	Full Retirement Age
1937	1999	65
1938	2000	65 + 2 mo.
1939	2001	65 + 4 mo.
1940	2002	65 + 6 mo.
1941	2003	65 + 8 mo.
1942	2004	65 + 10 mo.
1943–1954	2005–2016	66
1955	2017	66 + 2 mo.
1956	2018	66 + 4 mo.
1957	2019	66 + 6 mo.
1958	2020	66 + 8 mo.
1959	2021	66 + 10 mo.
1960	2022	67
1961 +	2023 +	6

 

Insured: A worker is only entitled to receive benefits if that worker is fully insured. Workers are only considered fully insured in 2006 if they have worked forty quarters of work (a quarter is three months) and earned $920 per quarter. To have currently insured status, workers must have worked a minimum of six quarters in the previous thirteen quarters.

 

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