If you’ve ever read up on Social Security retirement benefits, you’ve likely come across a number called the Primary Insurance Amount, or PIA. So just what is PIA? I mean, besides the airport designation for the General Wayne A. Downing, Peoria (IL) International Airport?
Primary Insurance Amount – PIA
The Primary Insurance Amount (PIA) is the projected amount of Social Security retirement benefits that you will receive if you file for benefits at exactly your Full Retirement Age – FRA, in Social Security Administration parlance.
(see this article for information about determining your FRA).The PIA is one of the factors used in determining the actual amount of your retirement benefit when you file at other ages – the other factor being the date (or rather your age) when you elect to begin receiving retirement benefits.
So, how is PIA calculated?
In true government style, this calculation can be pretty complicated. You start off with your Average Indexed Monthly Earnings (AIME – which we defined here). Then, hold onto your hat, because it gets hairy from here:
- the first $895 of your AIME is multiplied by 90%
- the amount between $895 and $5,397 is multiplied by 32%
- any amount in excess of $5,397 is multiplied by 15%
Note: these are the figures for 2018. The figures used (referred to as “bend points”) are based upon the year when the retiree is first eligible to claim benefits – at age 62.
So let’s work through a couple of examples:
Our first retiree is age 62 in 2018, and is hoping to begin taking Social Security benefits immediately upon eligibility – to get what’s coming to her. Her AIME has been calculated as $6,500. Applying the formula, we get the following:
- first bend point: $805.50 ($895 * 90%)
- second bend point: $1,440.64 ($5,397 – $895 = $4,502 * 32%)
- excess: $165.45 ($6,500 – $5,397 = $1,103 * 15%)
- For a total PIA of: $2,411.59 ($805.50 + $1,440.64 + $105.45), rounded down to $2,411.50
The second example retiree also is age 62 in 2010. His AIME has been calculated as $4,000. Applying the formula:
- first bend point: $805.50
- second bend point: $993.60 ($4,000 – $895 = $3,105 * 32%)
- excess: $0
- For a total PIA of: $1,799.10 ($684.90 + $1,036.48)
You should note that the PIA is always rounded down to the next lower multiple of $0.10.
… And that’s just the start!
Once your PIA is calculated, it doesn’t just sit there like the boring number that it is. Each year, your PIA may be adjusted, according to any additional (increased) earning years you accrue that may impact your AIME. Plus, your Primary Insurance Amount is simply the basis for your Social Security retirement benefit calculation: the age that you begin taking the payment of retirement benefits is taken into the equation as well, which you’ll see in the Retirement Benefit Calculation article.