In my last article, I provided a bit of history regarding the inception of Social Security, some trivia regarding its early days, and a few key definitions. This installment is going to give you an overview of the calculations behind taking benefits early or delaying benefits. Be forewarned, this article is full of acronyms.

What’s Your FRA?
If you remember from the last newsletter, FRA stands for Full Retirement Age and is based on your year of birth. See the chart below to determine your FRA for Social Security retirement benefits only.

Year of Birth

FRA

1943 – 1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 and after

67

Locating Your PIA
Now that you know your FRA, you will need to determine your PIA (Primary Insurance Amount). The PIA is the monthly amount payable at FRA. Prior to 2011, the easiest way to locate your PIA was turn to the second page of your Social Security Statement. The PIA was the first line under “Your Estimated Benefits” (see sample below).

 

In 2011, the Social Security Administration stopped mailing annual statements, which saves the government millions of dollars annually. Instead, they developed www.ssa.gov/myaccount to provide digital statements. Since very few individuals have set up accounts on this website, the SSA recently began mailing statements to workers on their 5-year milestone birthdays (e.g. 25, 30, 35, 40, etc.) beginning with age 25, with two exceptions to the physical mailings:

  1. You will not receive physical statements if you have set up an account on www.ssa.gov/myaccount.
  2. You will not receive physical statements if you are already receiving Social Security benefits.

OK, now that you know your FRA and PIA, it is time to look at how taking benefits before or after Full Retirement Age can affect your monthly benefit.

Taking Benefits Early
If you begin receiving benefits before FRA, your benefit will have a “reduction factor” applied to the PIA. For those who want to know that math behind the numbers (and you know who you are), the calculation is:

5/9 of 1% for each of the first 36 months before FRA
(which pencils out to about 6.7% per year reduction)

plus

5/12 of 1% for each month in excess of 36
(which pencils out to a 5% per year reduction)

Delaying Benefits
If you choose to delay receiving benefits, you will earn Delayed Retirement Credits (DRCs) for any month from FRA up to age 70. For those born after 1943, the credit amount is 8.0% per year (prorated for months).

Comparing the Benefits
Below is a chart that compares the benefits for various years of birth and beginning ages. To keep it simple, examples do not include future COLAs. The dollar amount illustrated is based on a PIA of $2,000.

YEAR OF BIRTH

Beginning Age Benefit

1943 – 1954

1955

1956

1957

1958

1959

1960 and after

 Age 62 % of PIA 1

75.0%

74.1%

73.3%

72.5%

71.6%

70.8%

70.0%

$ 2

$1,500

$1,482

$1,466

$1,450

$1,432

$1,416

$1,400

 Age 63 % of PIA 1

80.0%

79.1%

78.3%

77.5%

76.6%

75.8%

75.0%

$ 2

$1,600

$1,582

$1,566

$1,550

$1,532

$1,516

$1,500

 Age 64 % of PIA 1

86.6%

85.5%

84.4%

83.3%

82.2%

81.1%

80.0%

 $ 2

$1,732

$1,710

$1,688

$1,666

$1,644

$1,622

$1,600

 Age 65 % of PIA 1

93.3%

92.2%

91.1%

90.0%

88.8%

87.7%

86.6%

 $ 2

$1,866

$1,844

$1,822

$1,800

$1,776

$1,754

$1,732

 Age 66 % of PIA 1

100.0%

98.8%

97.7%

96.6%

95.5%

94.4%

93.3%

 $ 2

$2,000

$1,976

$1,954

$1,932

$1,910

$1,888

$1,866

 Age 67 % of PIA 1

108.0%

106.7%

105.3%

104.0%

102.7%

101.3%

100.0%

 $ 2

$2,160

$2,134

$2,106

$2,080

$2,054

$2,026

$2,000

 Age 68 % of PIA 1

116.0%

114.7%

113.3%

112.0%

110.7%

109.3%

108.0%

 $ 2

$2,320

$2,294

$2,266

$2,240

$2,214

$2,186

$2,160

 Age 69 % of PIA 1

124.0%

122.7%

121.3%

120.0%

118.7%

117.3%

116.0%

 $ 2

$2,480

$2,454

$2,426

$2,400

$2,374

$2,346

$2,320

 Age 70 % of PIA 1

132.0%

130.7%

129.3%

128.0%

126.7%

125.3%

124.0%

 $ 2

$2,640

$2,614

$2,586

$2,560

$2,534

$2,506

$2,480

Age 70 >  

No Change

(1) Rounded to nearest 10th
(2) $ based on a PIA of $2,000. Allow for slight variance due to rounding

Next Installment
The next installment in this series will introduce you to Val and Pat, a married couple with gender-neutral names, and the simple and complex Social Security planning options available to them.

Disclosure
Although this information was obtained from the Social Security website and other reliable resources, we make no guarantee of its accuracy.