How Are My Benefits Determined

I had a client in the office who asked a simple question, “How do they determine how much I will receive?”

I explained that:

The best thing you can do is to go to http://www.ssa.gov and click the 'my benefits' tab and follow the instructions. It will give you the benefit amounts due at this time, at your present age. Remember, to be eligible for a noted benefit what social security calls a benchmark year, must have occurred. A benchmark year takes place when an event occurs which results you becoming eligible for a social security benefits, i.e. retirement, disability, death etc.

My job has been obtaining disability benefits for clients, how the amount of the benefit is determined, I have left to social security, but I will attempt an elementary explanation of how benefits are determined.

The amount of a benefit that a claimant is entitled is based upon a determination of his/her primary insurance amount. Once determined the primary insurance amount (PIA) is the basis for determining retirement, disability and all other auxiliary benefits.

PIA is the figure that SSA uses to calculate the actual benefit payable to a claimant, etc. based upon the claimant's work record. How PIA is calculated depends on a number of factors and can be calculated in one of several ways (1) (SSA will select the method that provides the highest PIA to the claimant).

A good starting point is how much is paid into your account, from years of working, to determine a benefit base. The maximum contribution level has changed since 1937 and continues to change. The total paid into social security is then used as the basis for determining a average monthly earning during any calendar year.

If you became eligible for benefits after 1978, reaching age 61, the PIA is determined by the type of benefit applied, retirement, disability (1) average indexed monthly earnings, (2) average monthly wage, or (3) guaranteed alternative method (20 CFR 404.210-230), years worked, time worked, and application of a formula. In this computation, years counted are those 1950 and after, or after reaching age 22 (if later) up to the occurrence of an eligibility event, retirement, disability, death or blindness. From this group of years, up to 5 years of the lowest earning can be disregarded. A calculation is made to determine base years, i.e. years of the highest earnings.

Lastly, applied to each formula is a factor that reduces benefits if early retirement is taken, i.e retiring at 62 versus age 66. There is also a special minimum benefit amount that is given to certain individuals who have long period of work earning relatively low earnings (assuming that each has at least 11 years of coverage.)