Primary Insurance Amount

Primary Insurance Amount (PIA) is the amount that you would receive if you start receiving retirement benefits at the normal retirement age of 66, as determined by the Social Security Administration (SSA). For individuals who receive Social Security Disability benefits before normal retirement age, the Primary Insurance Amount will be reduced.

Typically, the Primary Insurance Amount for a functional adult who does not draw on Social Security Disability benefits is determined by a formula set by the Social Security Administration. Primary Insurance Amount is the sum of three percentages, which are calculated from a portion of average indexed monthly earnings. Under normal circumstances, this calculation begins at age 65.

Each year, an amount is set by the Social Security Administration to help calculate the percentages. For 2016, the SSA considers the portions and the first $810 earned; the dollar amount between $749 and $9,779.44; and the amount earned over $9,779.44. The amounts are known as “bend points” and percentages of earned retirement payments are based off of them. Bend points are set by the federal government and subject to change each year.

The formula is pretty straight-forward for individuals who begin collecting at regular retirement age (65) or later. In 2011, the Primary Insurance Amount paid is 90 percent of the first $810 of average indexed monthly earnings, plus an additional 32 percent of earnings between $810 and $9,779.44, plus an additional 15 percent of monthly earnings in excess of $9,779.447.

If you begin collecting Social Security benefits before age 65, the Primary Insurance Amount will be reduced. The calculation is based on the amount of years in which you collect early. For example, if you begin collecting benefits at age 62 instead of 66, the Primary Insurance Amount is reduced by five-ninths of 1 percent during the first 36 months and five-twelfths of 1 percent for additional months.

It can be frustrating trying to understand the retirement penalties if you collect Social Security Disability. The formula for calculating Primary Insurance Amount is subject to change, and is dependent on the amount of years you are on disability. A financial advisor or accountant familiar with Social Security benefits can be of immeasurable help when trying to calculate your Primary Insurance Amount.