What is the basis used for calculating the primary insurance amount (PIA) for Social Security benefits?

The primary insurance amount (PIA) for Social Security benefits is calculated using the Average Indexed Monthly Earnings (AIME). The AIME represents an individual's average earnings over their working life, adjusted for inflation, which ensures that the benefit calculations reflect contemporary economic conditions.

To determine the AIME, an individual's past earnings are indexed to account for wage growth over time before being averaged over the highest 35 years of indexed earnings. This method allows for a more accurate reflection of a person's lifetime earnings, which plays a crucial role in deciding their benefit amount.

The PIA formula then applies specific calculation factors to the AIME, which determines the monthly benefit that a retiree would receive upon reaching retirement age, highlighting the importance of the AIME in the overall calculation of Social Security benefits. Other options, while they may sound plausible, do not accurately represent the established method used to ascertain an individual's benefits under Social Security.