Bend points are the portions of your average income (Average Indexed Monthly Earnings – AIME) in specific dollar amounts that are indexed each year, based upon an obscure table called the Average Wage Index (AWI) Series. They’re called bend points because they represent points on a graph of your AIME graphed by inclusion in calculating the PIA.
If you’re interested in how Bend Points are used, you can see the article on Primary Insurance Amount, or PIA. Here, however, we’ll go over how Bend Points are calculated each year. To understand this calculation, you need to go back to 1979, the year of the Three Mile Island disaster, the introduction of the compact disc and the Iranian hostage crisis. According to the AWI Series, in 1979 the Social Security Administration placed the AWI figure for 1977 at $9,779.44 – AWI figures are always two years in arrears, so for example, the AWI figure used to determine the 2016 bend points is from 2014.
With the AWI figure for 1977, it was determined that the first bend point for 1979 would be set at $180, and the second bend point at $1,085. I’m not sure how these first figures were calculated – it’s safe to assume that they are part of an indexing formula set forth quite a while ago. At any rate, now that we know these two numbers, we can jump back to 2014’s AWI Series figure, which is $46,481.52. It all becomes a matter of a formula now:
Current year’s AWI Series divided by 1977’s AWI figure, times the bend points for 1979 equals your current year bend points
So here is the math for 2010’s bend points:
$46,481.52 / $9779.44 = 4.7530
4.7530 * $180 = $855.54, which is rounded up to $856 – the first bend point
4.7530 * $1,085 = $5,157.01, rounded to $5,157 – the second bend point
And that’s all there is to it. Hope this helps you understand the bend points a little better.
Photo by JennyHuang