West Virginia State Life Insurance Practice Exam

What determines the full amount of Social Security retirement benefits a qualified individual can receive?

1. Average Indexed Monthly Earnings (AIME)

2. Primary Insurance Amount (PIA)

3. Current Earnings Test (CET)

4. Benefit Adjustment Factor (BAF)

The correct answer is: Primary Insurance Amount (PIA)

The amount of Social Security retirement benefits a qualified individual can receive is determined by the Primary Insurance Amount (PIA). The PIA represents the monthly benefit that a person is entitled to receive at full retirement age, based on their lifetime average earnings that were subject to Social Security taxes. To calculate the PIA, the Social Security Administration uses a formula that considers the individual's Average Indexed Monthly Earnings (AIME), which reflects the individual’s earnings over their working life, indexed to account for wage growth. However, it is the PIA that directly translates into the benefit amount received upon retirement. Factors such as the Current Earnings Test (CET) and the Benefit Adjustment Factor (BAF) play roles in adjusting benefits under certain conditions, but they do not determine the fundamental amount of benefits a person is eligible for. The PIA is the primary metric officials and beneficiaries look at to understand how much money the beneficiary will get from Social Security each month.