Primary Insurance Amount

Your primary insurance amount is the retirement benefit you would receive if you retired at your usual retirement age. You may find your normal retirement age at http://www.ssa.gov/oact/ProgData/nra.html. If you retire before reaching this age (for example, if you are receiving Social Security Disability benefits that convert to retirement benefits at your usual retirement age), your primary insurance amount will be lowered. This amount will be enhanced if you retire later than your typical retirement age. In other words, your primary insurance amount serves as the basis for calculating Social Security Disability benefits if you retire early due to disability, as well as retirement benefits if you retire at or after your normal retirement age.

Your primary insurance benefit is determined using a method that takes into account your average monthly indexed earnings, the year you begin receiving benefits, and your normal retirement age. If you begin receiving disability or old age payments in 2011, for example, the Social Security algorithm divides “bend points” into three sections. After then, the bent points are multiplied by the average wage index for the year of retirement. The formula, which use the average pay index, is meant to account for wage variability over the course of your working life. In 1970, the average pay index was $9,779.44; in 2009, it was $40,711.61.

Your bend points are determined by the SSA in three steps. To begin, the Social Security Administration calculates 90% of the first $749 of your average indexed monthly earnings. 32% of your average indexed monthly earnings that happen to be between $749 and $4,517 is added to that figure. Social Security adds up 15% of your average indexed monthly earnings in excess of $4,517 to that figure. Social Security rounds to the next lower multiple of $0.10 if the amount is less than that.

Regrettably, benefit calculation has a plethora of starting points. The SSA provides six distinct “normal” computations that may or may not be applicable in any given instance. Whatever the applicant’s age at the time he or she becomes eligible for Social Security Disability or retirement benefits is considered, as is whether or not a disability benefit freeze was in effect during any of the years considered, as is whether or not the applicant is receiving survivor’s benefits at the time he or she becomes eligible for Social Security Disability or retirement benefits, and as is whether or not the applicant has earnings credited to a period.

That is to say, the formula for calculating the amount of your Social Security Disability or retirement payments can be fairly complicated.