Primary Insurance Amount

Posted in Finance, Accounting and Economics Terms, Total Reads: 446
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Definition: Primary Insurance Amount

The primary insurance amount is received by an individual under social security act. This is a retirement benefit plan and is calculated in conjunction with Average Indexed Monthly Earning (AMIE). After calculating the AMIE we calculate the Primary insurance amount which is monthly payable received after the retirement.

The benefit plan depends on the past earning history and also depends on the age when one starts taking benefits. The full retirement age is varied as the laws are changed and as the PIA depends on the past earning, the change in retirement age also changes PIA. The calculation of PIA is a two step process. The first is the calculation of AMIE and then the PIA. The Amie is calculated as follows:

a. First we calculate the present value of money discounted at proper rate. All the past earnings is converted in present terms.

b. Of all the earnings noted we select the highest 35 years of payment. In case a person has worked for less than 35 years the amount for rest of the years is taken as zero.

c. We will add the earning and then divide it by 420 ( the number of months in service)

After calculating this we will calculate PIA based on the slab provided i.e,

a. 90% of any AMIE up-to $767, added to

b. 32% of any AMIE between $767 and $4624, added to

c. 15% of any AMIE above $4624.

d. The higher the inflation the greater the PIA.

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