Many individuals have difficulty understanding how their Social Security Retirement Benefits are calculated and questions about the impact of taking retirement benefits early or waiting receive them.
How Do I Qualify for Social Security Benefits?
Individual workers must meet specific requirements to qualify for Social Security Retirement Benefits. This is call being “fully insured”, which means that the worker has earned 40 quarters of coverage under the Social Security system. Quarters of coverage are determined based on annual earnings. Workers may only receive 4 quarters of coverage in any calendar year. Into thousand 18, the designated amount for a quarter of coverage is $1,320. Meaning workers who earn at least $5,280 are credited with four quarters of coverage for 2018. Social Security Fact Sheet
What Do I Receive for Qualifying?
Being considered fully insured by Social Security provides individuals and their beneficiaries with many potential benefits. Social security beneficiaries include the insured worker, their spouse, children, and dependent parents. These benefits include: Retirement Benefits, Disability Benefits,Family Benefits, Survivors Benefits, and Medicare.
How Much Should I Expect to be My Retirement Benefit Amount?
The amount of a worker can expect to receive in Social Security Retirement Benefits is calculated by their actual historical earnings, current age, and full retirement age as defined by the Social Security Administration. The social security administration will adjust or index, for inflation, workers historical earnings into actual earnings. The administration then calculates the worker’s “average indexed monthly earnings” or AIME, during the 35 years in which the applicant earned the most. The social security administration applies a formula to these earnings and arrives at a basic benefit, which is referred to as the “primary insurance amount” of PIA. This is the amount of a worker could expect to receive on a monthly basis from the Social Security Administration provided the worker has achieved their full retirement age.
What is Full Retirement Age and Why Should I Care?
Full retirement age is based on the worker’s birthdate. However, if the worker was born after 1960 full retirement age is 67. The decisions a worker makes regarding when to file for and begin receiving social security payments can significantly impact their monthly benefit. A fully insured worker whose full retirement age is 67 and chooses to begin receiving Social Security early will permanently decrease their monthly income from Social Security. Conversely, a worker who chooses to wait past therefore retirement age before beginning Social Security benefits would permanently increase those benefits. Benefits increased between 3% to 8% per year (depending on their full retirement age) for each year past full retirement age the work waits to begin Social Security Benefits. Benefits will not continue to increase past the age of 70.
- Example 1: A worker who chooses to begin Social Security benefits at the age of 62 would permanently reduce their social security benefits by 30% (assuming their full retirement age is 67).
- Example 2: A worker who waits until age 70 to begin receiving their social security benefits would permanently increase those benefits by 8% per year for a total increase of 24%.
The decision to take retirement benefits early or wait past full retirement age is a significant. To be prudent workers should consult with their financial planners and tax consultants prior to making any decisions. Their advisors will help them to review and understand their entire financial picture and can illustrate the impact a filing options. Additionally, these advisors can’t help families to understand the additional benefits provided by the Social Security Administration including evaluating Medicare and additional supplemental Medicare plans.
This information is general in nature and may be subject to change. Financial professionals and other representatives are not authorized to give legal, tax or accounting advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For advice concerning your individual circumstances, consult a professional attorney, tax advisor or accountant.
Securities offered through NMS Capital Advisors, LLC, Member FINRA/SIPC. Advisory products and services offered through Castle Wealth Advisors, LLC, a Registered Investment Advisor. NMS Capital Advisors, LLC and Castle Wealth Advisors, LLC are unaffiliated entities.