Primary Insurance Amount
The Primary Insurance Amount (PIA) is a component of Social Security provision in the United States. Eligibility for receiving Social Security benefits is contingent upon the recipient: (i) having worked for at least 10 (noncontiguous) years and (ii) having paid the Federal Insurance Contributions Act (FICA) tax up to a maximum taxable earnings threshold. For the purposes of the United States Social Security Administration, PIA is used as the beginning point in calculating the annuity payment of benefits that is provided to an eligible recipient each month during retirement until the recipient's death. Generally, the more  a person pays into the Social Security Trust Fund during their life, the higher their PIA will be. However, specific rules in its computation may deviate from this general rule. Computation. The main determinant of PIA is the Average Indexed Monthly Earnings (AIME). To calculate AIME, the individual's wages are first expressed in today's dollars by inflating the value to reflect increases in the wage level during the worker's years of employment. The inflated wages are totaled across the highest 35 earnings years. The sum is then divided by 420 (12 months multiplied by 35 years) in  order to calculate real average monthly earnings. This estimate of real monthly earnings is referred to as the AIME. As a redistributive function of AIME, PIA is designed to reward workers who earn more with higher benefits, but also to ensure that benefits do not rise nearly as fast as earnings. Monthly Social Security benefits at full retirement age are determined through adjusting AIME by multipliers at specific earnings thresholds, which are called "PIA bend points". Accordingly, the PIA is the sum of three separate percentages of portions of estimated AIME. The percentages of the PIA formula are fixed by  law, but the dollar amounts in the formula change annually in response to changes in the national average wage index. For 2018, the PIA computation formula is:PIA = 0.90*(AIME up to 895) + 0.32*(AIME between 5397 and $895) + 0.15*(AIME - $5,397)Accordingly, a beneficiary's PIA will be the sum of: (a) 90 percent of the first $895 of average indexed monthly earnings, plus (b) 32 percent of average indexed monthly earnings between $895 and $5,397, plus (c) 15 percent of average indexed monthly earnings over $5,397 Conversion to actual benefits. The actual amount  of benefits provided to the recipient depends on the age at which they claim their social security benefits, relative to their full retirement age. Full retirement age (FRA) is a function of year of birth and is defined by the Social Security Administration as follows: Eligible individuals can begin collecting old-age insurance benefits as early as age 62, which is referred to as the Early Entitlement Age (EEA). Accordingly, individuals born between January 2, 1955, and January 1, 1956, are eligible to accept retirement benefits when they turn 62 in 2017. However, there exists a penalty for collecting benefits  before full retirement age: the recipient's monthly benefits are permanently reduced. For instance, if a recipient turns age 62 in 2017, their benefit will be approximately 25.8 percent lower than it would have been at full retirement age of 66 and 2 months. In contrast, recipients are rewarded through delayed retirement credits if Social Security benefits are claimed after full retirement. For recipients born in 1943 or later, 8 percent is added to the yearly benefit amount for each year the recipient delays receiving Social Security benefits beyond their full retirement age. No delayed credit is given after age  69. Eligible individuals who collect their benefits at full retirement age will receive their calculated PIA. More specifically, in 2017, beneficiaries who retire at age 62, full retirement age, or age 70 receive $2,153, $2,687, or $3,538, respectively, in benefits. Effects of working on retirement benefits. Contrary to common perception, it is still possible to receive retirement benefits and still continue to work. For individuals who decide to accept benefits before their retirement age, $1 in benefits is deducted for each $2 that is earned above the annual limit ($16,920 for 2017). In the  year of an individual's full retirement age, up until the precise month of full retirement, $1 of benefits is deducted for every $3 that is earned over the annual limit ($44,880 for 2017). Regardless of the level of earnings, there are no deductions from benefits beyond full retirement age. Alternative computation methods. Since the "Social Security Act" was first signed in 1935, new legislation has provided for various ways of computing the PIA. In order to assure that those already receiving benefits are not harmed by newer methods designed to provide more benefits for others, the  highest PIA through any applicable method is used. DIB Freeze. Social Security procedures indicate that a worker's earnings record can be "frozen" at the time he or she qualifies for a period of disability, thereby preserving the individual's insured status and preventing the loss of future retirement or disability benefits which may be computed without considering periods of disability. A period of disability for a worker is therefore often referred to as a "disability freeze." Normal computations. The primary means of calculating PIAs are the following computation methods. These methods apply in most cases, rather than a handful  of cases. 1978 New Start Method. All benefits payable to beneficiaries eligible after 1978 may use the 1978 New Start Method, also known as the Average Indexed Monthly Earnings (AIME) PIA. To determine the value of this PIA: New Start Transitional Guarantee PIA Method. The New Start Transitional Guarantee PIA Method may only be used for beneficiaries who: 1977 Simplified Old Start Method. The 1977 Simplified Old Start Method may be only be used for beneficiaries who: 1967 Simplified Old Start Method. The 1967 Simplified Old Start Method may be only be used for beneficiaries who: 1965 Old Start Method . The 1965 Old Start Method may be only be used for beneficiaries who: 1965 New Start Method. The 1965 Simplified New Start Method may be only be used for beneficiaries who: Family maximum benefits. There is a maximum monthly amount that is allowed to be paid on an individual's earnings record. In 2019, for retirement and spousal benefits, for the family of an individual who is at least 62 years old or dies in 2019 before the age of 62, the total amount of benefits payable cannot exceed 150 percent of the first $1,184 of the worker 's PIA, plus 272 percent of the worker's PIA over $1,184 through $1,708, plus 134 percent of the worker's PIA over $1,708 through $2,228, plus 175 percent of the worker's PIA over $2,228. The total amount is then rounded down to the nearest multiple of $0.10. For disabled individual, the calculation of family maximum benefits differs. The family maximum for the family of a disabled individual is equal to 85 percent of the worker's Average Indexed Monthly Earnings, but it cannot be less than 100 percent of the individual 's PIA and it cannot exceed 150 percent of the individual's PIA. Sources. "Social Security Program Operations Manual System". Social Security Administration. https://web.archive.org/web/20070610231614/https://s044a90.ssa.gov/apps10/poms.nsf/partlist!OpenView.