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Social Security: Understanding the Basics

Understanding Social Security can seem to be a maze of information with no roadmap. Everybody wil travel this path so understanding the basics gets to be a must. That being said lets take a look at the 30 foot overview of this aspect of retirement.

Defining Social Security Terms

Full Retirement Age (FRA) is the age at which an individual receives the full retirement benefit from Social Security. The FRA for individuals varies by birth year.

Primary Insurance Amount (PIA) people who begin benefits at Full Retirement Age receive their Primary Insurance Amount

Delayed Retirement Credits are the increases in benefits for those who begin receiving benefits after their Full Retirement Age (FRA)

Benefits before & after Full Retirement Age

• Someone who begins benefits before attaining FRA receives reduced benefits

• The earliest you can receive benefits is age 62

• Someone who delays benefits until after FRA receives increased benefits

• You can delay benefits to age 70

• The table on the next page shows the reductions in benefits for starting Social Security benefits before attaining FRA and the increase in benefits for delaying the start of benefits until after FRA

What are benefit based on?

• The monthly benefits (PIA) is based on the worker’s Average Indexed Monthly Earning (AIME) which is the 35 years of highest earnings, where earnings for years before age 60 are indexed to reflect increases in U.S. workers’ average wage level.

• For example, if the average wage level is twice as high when the individual is 60 than when he was 40, the formula doubles the age-40 earning.

• If the worker has less than 35 years of income, the incomes are entered as zero for the remainder of the 35 years. Source: Social Security Strategies by William Reichenstein & Wiliam Meyer

Survivor Benefits

• There are also different FRA for Survivor’s Benefits for Widow(er)s born after 1939 as shown in the table below. Source: Social Security Strategies by William Reichenstein & Wiliam Meyer

If your birthdate is… Your full retirement age is… 1/2/40 - 1/1/41 65 years & 2 months

1/2/41 – 1/1/42 65 years & 4 months 1/2/42 – 1/1/43 65 years & 6 months 1/2/43 - 1/1/44 65 years & 8 months 1/2/44 – 1/1/45 65 years & 10 months 1/2/45 – 1/1/57 66 years 1/2/57 – 1/1/58 66 years & 2 months 1/2/58 – 1/1/59 66 years & 4 months 1/2/59 – 1/1/60 66 years & 6 months 1/2/60 – 1/1/61 66 years & 8 months 1/2/61 – 1/1/ 62 66 years & 10 months 1/2/62 and later 67 years

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Understanding Social Security

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