The Social Security Administration (SSA) calculates your “average monthly earnings” or “AME” by averaging your annual earnings from each year you worked and paid Social Security taxes. This average is then used to calculate the amount of your monthly Social Security Disability (SSD) payout.
The SSA considers your whole earnings history when determining your AME at the time of your disability:
- Your previous wages are converted or “indexed” to reflect current pay scales.
- Recent earnings are regarded at face value.
- The SSA calculates your AME using only your highest 35 years of earnings in order to ensure that your average is as high as feasible.
The SSA translates prior wages into new statistics by factoring in inflation for the kind of occupations you held in the past. For instance, in 1982, a position that paid $13,000 per year may pay $36,000 per year now. The Social Security Administration calculates your average earnings based on your current pay.
The Social Security Administration totals your annual earnings from your greatest 35 pay years to determine your “lifetime earnings.”
The total earnings during a lifetime are then divided by the total number of months in all “computation years.” Your AME is the result of this calculation.
The following is an illustration of how AME is calculated:
You worked for 25 years and paid Social Security taxes.
You will make $850,000 over the course of those 25 years.
Each year contains 12 months, which equates to 300 months in total for your 25 years of previous employment.
Earnings Over a Lifetime divided by the Total Number of Months of Previous Employment = Your AME
$850,000 multiplied by 300 equals $2,833.33