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How to Calculate Social Security Benefits - A Step by Step Guide

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Adjusting Your PIA Based on the Age You Being Social Security Benefits
Primary Insurance Amount

How to adjust your primary insurance amount (PIA) for reductions or increases based on claiming age.

Dana Anspach

The final amount of Social Security Retirement benefit that you receive is based on the age that you begin benefits.

  • The earliest you can begin retirement benefits is age 62 (age 60 if you are eligible for a widow or widower's benefit on a deceased spouse's or ex-spouse's record).
  • You get more by waiting until a later age to begin benefits.

Of course, another complex formula is used to determine how much more.

Social Security Formula Based on Age

The formula starts by using your PIA calculated in the previous step. This is the amount you will get if you start benefits are your Full Retirement Age (FRA). Your FRA can vary depending on the year you were born. For people born between 1943 and 1954 your FRA is age 66.

  • A reduction is applied to your PIA if you begin benefits before your FRA.
  • A credit, referred to as a delayed retirement credit, is applied if you begin benefits after your FRA.

Reduction Formula if You Begin Benefits Before Your FRA

  • 5/9 of 1%: Your benefits are reduced by 5/9 of 1% per month, up to a maximum of 36 months, depending on how many months you have until you reach FRA.
  • 5/12 of 1%: If you are more than 36 months away from reaching FRA, the reduction above is applied, and then for the number of months greater than 36 the formula is changed to a reduction of 5/12 of 1%.

Result:

  • 25% reduction: If your FRA is age 66, this means your benefits will be reduced by 25% if you begin taking them at age 62.

Credit for Taking Benefit Later Than FRA

  • 2/3 of 1% per month, or 8% a year: If you were born in 1943 or later, your benefits will increase by 2/3 of 1% per month (8% per year) for each month that you are past your FRA when you begin benefits. Survivor benefits for a widow or widower will also partake in these delayed retirement credits.

Result:

  • 32% increase: If your FRA is 66, this means your benefits will be increased by 32% by waiting until age 70 to begin.

The reduced or increased benefit amounts for different ages are shown on the left in the Benefit Amount in Today's Dollars column in the example above.

Your PIA is calculated at your age 62. If you wait until beyond age 62, for each year beyond age 62 additional cost of living adjustments will be applied to your PIA. The potential increases based on a 3% inflation rate are shown in the example above in the right side in the Benefit Amount in Future Dollars column.

If you have already had most of your 35 years of earnings, and you are near 62 today, the age 70 benefit amount you are seeing on your statement will likely be higher due to these cost of living adjustments. Many do not account for this when doing their own calculations and this makes them think taking Social Security early is a better deal, when in the majority of cases (but not all), waiting is the better deal.

Coming soon: an example of how not applying inflation adjustments causes you to miscalculate when you should being taking Social Security benefits.

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