How is AIME calculated?

The calculation of the Average Indexed Monthly Earnings (AIME) plays a crucial role in determining Social Security benefits. To calculate AIME, the process involves indexing the worker's earnings to account for wage growth over time and then averaging the highest 35 years of indexed earnings.

This approach ensures that benefits reflect both the individual’s contribution level and the overall economic context of the time they worked, as it adjusts for inflation and changes in earnings potential. Once the earnings for the highest 35 years are determined, they are summed and divided by the total number of months in those years, resulting in the AIME.

This method contrasts with simply summing all earnings or using only the last year's earnings, which wouldn’t adequately represent a worker's lifetime earning potential or contributions. Additionally, only considering the lowest earnings would not contribute to a fair assessment of benefits. Thus, indexing and selecting the highest earning years provides a more equitable and sustainable basis for calculating Social Security benefits.