What does Average Indexed Monthly Earnings represent?

Average Indexed Monthly Earnings (AIME) is a crucial concept used primarily in the context of Social Security benefits. It represents the average of a worker's indexed earnings over a specific period, which is typically 35 years of highest earnings. The earnings are indexed to account for inflation, effectively allowing the calculation to reflect the real growth in wages over time. This indexing process means that the AIME takes into account how earnings have changed, enabling a fair assessment of a worker's contributions to the Social Security system.

By averaging these indexed earnings, the calculation of retirement benefits becomes more equitable and reflective of an individual's true earning capacity throughout their career. This method ensures that workers are rewarded for their higher-earning years while factoring in changes in the economy that influence wage growth. Thus, the correct interpretation of AIME as averaged earnings over a time period aligns with its purpose in the Social Security framework.