Calculating your average monthly income
Now that you know how Social Security bend points affect your retirement benefit, you're probably wondering how you can use them to calculate it yourself.
The first step, as noted above, is calculating your average indexed monthly earnings (AIME). Your AIME is based on two factors:
- How much you earned in your career
- When you earned it
Social Security adjusts your historic wages for inflation using its average wage index (AWI). However, it stops adjusting earnings for inflation when you turn 60, even if you don't claim benefits until much later.
The Social Security Administration provides workers with their earnings records. However, you'll need to perform some calculations to determine your AIME.
Go to the Social Security Administration's AWI table and find the year you turned 60 on it. (If you haven't yet turned 60, you can use the most recent year's number.) For each year you earned wages, multiply your earnings by the wage index in the year you turned 60 and divide it by that year's wage index. Any earnings in years after you turn 60 remain the same.
For example, if you turned 60 in 2020 (AWI of 55,628.60), the $10,000 you earned in 1980 (AWI 12,513.46) will be adjusted to $44,455. That's $10,000 * 55,628.60 / 12,513.46.
It'll help if you're handy with a spreadsheet.
Once you have your adjusted earnings, you select your 35 highest-earning years.
Add up the adjusted earnings from those 35 years and divide by 420 (the number of months in 35 years). That number is your average indexed monthly earnings.
