AIME Definition: What It Is and How It’s Calculated

The Average Indexed Monthly Earnings (AIME) is a key figure in calculating Social Security benefits in the U.S. It determines an individual’s retirement or disability payments by adjusting past earnings for wage growth. Understanding AIME is essential for financial planning, as it directly affects Social Security income.

To calculate AIME, specific earnings are considered, adjusted for wage growth, and averaged over a set period. Each factor plays a role in determining final benefit amounts.

Earnings Included

AIME is based on an individual’s work history and reported wages, but only earnings subject to Social Security taxes are included. Wages from jobs that did not withhold these taxes—such as certain government positions or improperly reported self-employment income—are excluded. Even high earners only have the portion taxed for Social Security counted in their benefit calculation.

There is also a cap on the annual earnings considered. In 2024, the maximum taxable earnings limit is $168,600, meaning any income above this threshold does not contribute to Social Security benefits. This cap is adjusted annually based on national wage growth. For example, in 2010, the taxable maximum was $106,800, so only that amount would be included in AIME calculations for someone earning above it.

Self-employed individuals must pay both the employee and employer portions of Social Security taxes, with net earnings from self-employment used instead of gross income. Business expense deductions can lower the amount counted toward AIME, potentially reducing future Social Security benefits.

Indexing Methods

To ensure Social Security benefits reflect changes in wage levels, past earnings are adjusted using wage indexing. Without this, early-career wages would be undervalued compared to recent earnings, distorting lifetime income calculations.

The Social Security Administration (SSA) applies wage indexing using the national average wage index (NAWI). Earnings from earlier years are scaled up to reflect wage growth. The highest 35 years of indexed earnings are then used in the AIME calculation. For example, if someone earned $30,000 in 1990, that amount would be adjusted upward based on wage growth. The SSA publishes the NAWI annually, and the indexing factor for each year is determined by comparing that year’s average wage to the average wage two years before the individual turns 62.

Indexing has a greater impact on those with lower early-career wages who saw substantial increases later. Without this adjustment, their earlier earnings would be worth much less in today’s terms, reducing their Social Security benefits. Those with relatively stable wages experience less impact from indexing.

Duration of Calculation

AIME is based on the highest 35 years of indexed earnings. If someone worked more than 35 years, only the highest-earning years are included. If they worked fewer, the missing years are counted as zero, lowering the average. This can significantly impact those who took extended time off from the workforce, such as stay-at-home parents or individuals with long periods of unemployment. Working additional years to replace lower-earning ones can help maximize benefits.

For those with fluctuating income, this averaging method smooths out variations, preventing a single low-earning year from having an outsized effect. However, because the calculation is based on monthly earnings, even short periods of reduced income can slightly lower the final amount. This is especially relevant for those transitioning into semi-retirement, as lower earnings in later years could replace higher-earning years in the calculation.

Differences from Other Income Metrics

AIME is a formula-driven figure used specifically for Social Security benefit calculations. Unlike adjusted gross income (AGI) or taxable income, which are used for tax reporting and financial planning, AIME does not account for deductions, credits, or non-wage income sources such as capital gains, rental income, or dividends. High earners with substantial investment income may have a relatively low AIME if their wage earnings were modest or inconsistent.

Another key difference is that AIME is calculated using historical earnings adjusted for wage growth, whereas other financial metrics—such as net income on a tax return—reflect current-period results without backward-looking adjustments. Financial statements prepared under Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) emphasize accrual-based income recognition, which includes revenues earned regardless of when cash is received. AIME, by contrast, focuses solely on long-term wage history.