According to the Social Security Administration:

The PIA is the sum of three separate percentages of portions of average indexed monthly earnings (AIME). The portions depend on the year in which a worker attains age 62, becomes disabled before age 62, or dies before attaining age 62.The PIA is the sum of three separate percentages of portions of the average indexed monthly earnings. The “bend points” of the PIA formula are the dollar amounts that govern the portions of the average indexed monthly earnings. The bend points in the year 2006 PIA formula, $656 and $3,955, apply for workers becoming eligible in 2006. (See table of bend points for the bend points applicable in past years.)

For example, a person who had maximum-taxable earnings in each year since age 22, and who retires at age 62 in 2006, would receive a reduced benefit based on a PIA of $2,030.00. This individual would not receive the 4.1-percent COLA for December 2005, but would instead receive the COLA effective for December 2006.