TABLE 3.-INSURED STATUS REQUIREMENTS FOR VARIOUS MAJOR BENEFIT CATEGORIES The amount of a monthly benefit award is determined by first computing an insured worker's average monthly wage (AMW) or— in the case of most workers who attain age 62, become disabled, or die after 1978-average indexed monthly earnings (AIME). The AMW is used in computing benefits under the old (coupled) benefit formula, and the AIME is used in computing benefits under the new (decoupled) benefit formula enacted in 1977. The AMW or AIME is linked (by a table in the law or by a formula, respectively) to the monthly retirement benefit payable at age 65-called the primary insurance amount (PIA). Benefits for dependents and survivors are calculated as a percentage of the insured worker's PIA. The calculated amounts may be subject to minimum levels, and all benefits are subject to maximum limits which are stated in the law. Benefits payable to workers, spouses, widows and widowers who choose to retire before age 65 are subject to an actuarial reduction. Benefits payable to workers, spouses, widows and widowers who choose to retire after age 65 are subject to increase through the delayed retirement credit. Average indexed monthly earnings (AIME) The AIME is a dollar amount which represents the average monthly earnings, adjusted for the growth in average wages in the economy, which was received by the worker during his covered employment. The AIME creates an earnings record that reflects the value of the individual's earnings relative to national average earnings in the indexing year. The indexing year is the second year before the year in which the worker attains age 62, or dies. Earnings after the indexing year are counted at their nominal value. There are four steps in the calculation of the AIME: (1) indexing the worker's earnings for each year after 1950 by dividing the worker's posted earnings for the year being indexed by the average wages of all workers in that same year and multiplying this result by the average earnings in the indexing year, (2) determining the number of computation years-the number of years after 1950 (or the year of attainment of age 21, if later) and up to the year the worker attains age 62, becomes disabled, or dies, minus dropout years, generally 5 (minimum number of computation years is 2); (3) selecting the actual computation years, based on highest earnings, from any year after 1950; and (4) dividing the sum of earnings in the computation years by the total number of months in the computation years. TABLE 4.-AVERAGE EARNINGS FOR EACH YEAR SINCE 1950 To illustrate the computation of a worker's AIME, assume a worker retired at age 62 in 1982 and had earned $4,000 in 1960, the actual amount earned in the year being indexed ($4,000 in 1960) would be divided by the average amount earned in that year ($4,007.12) and the result multiplied by the average wage in the indexing year ($12,513.46 in 1980). 4000.00/4007.12×12,513.46=$12,488.43 Thus, while the worker's actual earnings for 1960 were $4,000, his relative or indexed earnings would be $12,488.43. The procedure would be followed in adjusting the worker's earnings for each year since 1951 up to 1980 (the second year prior to attaining age 62). These "indexed" earnings would then be averaged over the time the worker could reasonably be expected to have worked in covered employment, (i.e. the number of computation years). The final average would be computed on a monthly basis. The result, known as average indexed monthly earnings (AIME), is applied to the primary benefit formula. Average monthly wage (AMW) The AMW, which is used in computing benefits under the old (coupled) benefit formula, is computed by: (1) determining the number of computation years-the number of years after 1950 (or the year of attainment of age 21, if later) and up to the year the worker attains age 62 (age 65 for men born before Jauary 2, 1911) and the later of age 62 or the year 1975 for men born after January 1, 1911, onset of disability or death, minus dropout years, generally 5 (minimum number of computation years is 2); (2) selecting the actual computation years, based on highest non-indexed earnings, for any year after 1950; and (3) dividing the sum of non-indexed earnings in the computation years by the total number of months in the computation years. Primary insurance amount (PIA) The PIA is the monthly benefit amount which would be payable to a retired worker who begins to receive benefits at age 65 and is the amount which is used as a base for computing all benefits which are payable on the basis of that worker's earnings record. The method of determining the PIA depends on whether an AIME or an AMW was computed for the worker. (This, of course, is determined on the basis of the worker's date of birth.) If an AMW has been computed for the worker, the PIA is determined through reference to wage tables which are updated and published annually. Under the transitional guarantee provision of the 1977 amendments (which is applicable only to workers who attain age 62 in 1979-83) if the PIA computed under the special guarantee is higher than under the AIME method, benefits are determined on the basis of the frozen 1978 benefit table. In cases where an AIME has been computed, the PIA is determined by applying the "Primary Benefit Formula" to the AIME. For workers retiring in 1982, the benefit formula provides that the PIA will be the sum of: 90 percent of the first $230 of AIME; 32 percent of AIME from $231 through $1,388; 15 percent of AIME over $1,388. The dollar amounts at which these percentages change are called "bend points". These points are adjusted annually to reflect wage increases. The index used for this purpose is a measure of the change in average wages in the economy from year to year. To illustrate the operation of the benefit formula, if a worker's AIME is $1,425, his PIA will be $582.79 (0.9×230=207.00, plus 0.32×1,157 370.24, plus 0.15x37-5.55). BENEFIT AMOUNTS The PIA is the dollar amount which is payable to a worker who begins to receive benefits at age 65. Other benefits amounts are based on this amount. The following table lists major types of benefits with the percentage of the insured worker's PIA which is paid. TABLE 5.--PERCENTAGE OF PRIMARY INSURANCE AMOUNT (PIA) PAID FOR VARIOUS MONTHLY BENEFIT CATEGORIES 1 Subject to maximum family benefit limitation. 2 Subject to general limitation that survivor cannot get a higher benefit than deceased worker would be getting if alive. BENEFIT REDUCTION AND INCREASE Social security benefits may be reduced, withheld or increased for several reasons, chiefly on account of early retirement, delayed retirement and, on account of earnings in excess of the exempt amount provided in the law ($6,000 in 1982 for beneficiaries between age 65 and 72). In addition, there is an overall limit on the total amount of benefits which can be paid at one time on the basis of any one earnings record. Actuarial reduction. This is the reduction in monthly benefit amount payable: (a) on entitlement at ages 62-64 if the beneficiary is a retired worker, a spouse of a retired or disabled worker (with entitlement not dependent on having a child beneficiary in their care), or a divorced spouse; (b) on entitlement at age 60-64 if the beneficiary is a widow, widower, or a surviving divorced spouse; or (c) on entitlement, in case of disability, at ages 50-59 if the beneficiary is a widow, widower, or surviving divorced spouse. At the time of award, the following reductions in benefit amount are made for: A retired-worker beneficiary-5% of 1 percent for each month of entitlement before age 65 (maximum reduction of 20 percent); A wife or husband beneficiary-25/36 of 1 percent for each month of entitlement before age 65 (maximum reduction of 25 percent); A widow including surviving divorced spouse-1940 of 1 percent for each month of entitlement between age 60 (maximum reduction of 28.5 percent). Disabled widow(ers) are reduced an additional 43240 of 1 percent for each month of entitlement before age 60. (Maximum reduction is 50 percent at age 50.) The benefit continues to be paid at a reduced rate even after age 65, except that the reduced rate is refigured at age 65 for all beneficiaries and also at age 62 for a widow, widower, and a surviving divorced wife to omit months for which the reduced benefit was not paid and to take into account any additional earnings. Data on benefit awards to retired workers for 1977 indicates that 67 percent of all such awards were actuarially reduced benefits (62 percent for men, 74 percent for women). Delayed retirement credit. A credit due a worker for delaying retirement after attaining age 65 for each month the worker: (1) was fully insured, (2) had attained age 65 but was not yet age 72, and (3) did not receive benefits because the worker had not filed an application or was working. Each monthly credit serves as a basis for increasing the monthly benefit (unless the benefit is based on a special minimum PIA) by 12 of 1 percent for workers who attained age 62 before 1979 and by 14 of 1 percent for workers attaining age 62 after 1978. The increase is applicable to the worker's monthly benefit amount but not to his PIA. Hence, auxiliary benefits are generally not affected. The exception is that a surviving spouse (including divorced) receiving widow(er)'s benefits is entitled, for months after May 1978, to the same increase that had been applied to the benefit of the deceased worker or for which the worker was eligible for at the time of death. Maximum family benefit. The maximum monthly amount that can be paid on a worker's earnings record varies with his PIA. For benefits payable on the earnings records of retired and deceased workers, the maximum varies between 150 and 188 percent of the PIA. No more than the established maximum can be paid to a family regardless of the number of beneficiaries entitled on that earnings record. The family maximum is computed by adding fixed percentages of dollar amounts which are part of the PIA: 150 percent of the first $294 of PIA, plus; 272 percent of PIA from $294 through $425, plus; The dollar amounts in this benefit formula (i.e. the "bend points") are adjusted annually by the same index used to update the bend points in the primary benefit formula. Whenever the total of the individual monthly benefits payable to all the beneficiaries entitled on one earnings record exceeds the maximum, each dependent's or survivor's benefit is proportionately reduced to bring the total within the maximum. In computing the total of the individual monthly benefits for entitlements based on a single earnings record, a benefit payable to a divorced spouse or to a surviving divorced wife is not included. Withholding. This is the suspension of benefit payments until the conditions causing deductions are known to have ended. Reasons for withholding benefits include: (1) earnings by a beneficiary (or any dependent drawing benefits on his earnings record) under age 72 from either covered or non-covered employment which exceeds the annual allowable amount (this is known as the "retirement test"); (2) failure of a wife under age 62 or mother or father beneficiary to have an entitled child in her care; (3) for special age72 beneficiaries, receipt of public assistance or supplemental secu |