During our seminars, we try to explain AIME to our attendees. It is quite complicated, so very hard to explain in few short minutes. AIME stands for Averaged Indexed Monthly Earnings. So that the Social Security Administration can determine your PIA (Primary Insurance Amount), 35 top years of earnings are needed to compute the AIME. Your Primary Insurance Amount is what is reported on your SS statement as the amount you will receive at a designated age. SS chooses those years with the highest earnings, sums the indexed earning amounts, applies an indexing factor, and then divides this amount by the total number of months in those years, being 420.
Your past earnings are indexed by adjusting them for subsequent economic growth, to put them in terms of today’s dollars. This is done by multiplying your past earnings by an index, that reflects changes in the national earnings for every year since you earned wages until you turn age 60. Included in this compensation are wages, tips and other compensation subject to federal income taxes and reported on your W-2. It 1991, this also started including contributions to deferred compensation plans. Excluded in this amount are certain distributions from plans that are reported as taxable compensation.
So, in thinking this through, you might be thinking what happens to the totals after age 60? These years are not indexed so they are counted at their actual value. How does that affect me? If you earn above the annual ceiling ($127,500 in 2017) the benefits of continuing to work are almost guaranteed, because they will represent a new top 35 year of earnings for you.
My top 35 years of earnings has some zeros included – this was because I chose to stay home with my kids during their younger years. My decision – no regrets, but these zeros are included in my total. So, for each year I work past age 60, if my income is more than zero, that will replace one of the numbers used to compute my AIME and my amount should increase. This could be a BIG DEAL for many of you.
The BIG DEAL doesn’t just stop at your benefit – the higher your benefit amount, the higher any auxiliary benefits will be for your family – Spousal Benefits, Family Benefits, and Survivor Benefits.
Putting a pencil and paper to all these calculations can be daunting to say the least. When we tell you it is complicated, we are not pulling your leg. Missing one of these rules and regulations can cost you income, and that is for the rest of your life.
Professional advice is simply a phone call away at 601-954-0699 or email us at dthompson@pillarsllc.com or visit our website at www.pillarsllc.com. Roy and Diane are both National Social Security Advisors and Roy is a former CPA of 40 years– we have your back on this one! We are Corinth, MS residents, but we service clients nationwide.
