Primary Insurance Amount

The Primary Insurance Amount (PIA[1]) is a component of Social Security provision in the United States. Eligibility for receiving Social Security benefits is contingent upon the recipient: (i) having worked for at least 10 (noncontiguous) years and (ii) having paid the Federal Insurance Contributions Act (FICA) tax up to a maximum taxable earnings threshold.[2] For the purposes of the United States Social Security Administration, PIA is used as the beginning point in calculating the annuity payment of benefits that is provided to an eligible recipient each month during retirement until the recipient’s death. Generally, the more a person pays into the Social Security Trust Fund during their life, the higher their PIA will be. However, specific rules in its computation may deviate from this general rule.

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The main determinant of PIA is the Average Indexed Monthly Earnings (AIME). To calculate AIME, the individual’s wages are first expressed in today’s dollars by inflating the value to reflect increases in the wage level during the worker’s years of employment.[3] The inflated wages are totaled across the highest 35 earnings years. The sum is then divided by 420 (12 months multiplied by 35 years) in order to calculate real average monthly earnings. This estimate of real monthly earnings is referred to as the AIME.[4]

As a redistributive function of AIME, PIA is designed to reward workers who earn more with higher benefits, but also to ensure that benefits do not rise nearly as fast as earnings.[2] Monthly Social Security benefits at full retirement age are determined through adjusting AIME by multipliers at specific earnings thresholds, which are called “PIA bend points”. Accordingly, the PIA is the sum of three separate percentages of portions of estimated AIME.[5] The percentages of the PIA formula are fixed by law, but the dollar amounts in the formula change annually in response to changes in the national average wage index.[6] For 2018, the PIA computation formula is:

graph of the PIA function

PIA = 0.90*(AIME up to 895) + 0.32*(AIME between 5397 and $895) + 0.15*(AIME – $5,397)

Accordingly, a beneficiary’s PIA will be the sum of:

(a) 90 percent of the first $895 of average indexed monthly earnings, plus

(b) 32 percent of average indexed monthly earnings between $895 and $5,397, plus

(c) 15 percent of average indexed monthly earnings over $5,397[7]

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