As you learn about Social Security and your possible benefits, there are several unique Social Security terms that you should understand. Below is a list and brief definitions of the most important of these Social Security terms.
Average Indexed Monthly Earnings (abbreviated as AIME) – this is the average of the highest 35 years of your lifetime earnings, indexed to inflation. Each year’s earnings is indexed based on when you reach age 60, and the highest 35 years are averaged. This average is divided by 12, to result in the monthly average. The AIME is used to determine your PIA. Your AIME can increase after age 62 if you’re continuing to work and earn in excess of some of your earlier indexed earnings amounts.
Bend Points – these two amounts are determined for each individual based upon the year that you will reach age 62. The Bend Points are applied to your AIME to calculate the PIA.
Delayed Retirement Credits (DRCs) – when you delay filing for benefits after your FRA, you accrue credits for the delay, known as a DRCs. You earn DRCs for delaying your filing for Social Security benefits after your FRA up to age 70 at maximum. No DRCs are earned after you reach age 70. Presently this delay credit is equal to 2/3% for each month of delay, or a total of 8% for each year of delay. These credits are accumulative – meaning that if you delay for 3 years your DRCs are 24%.
Full Retirement Age (FRA) – this is the age at which your Social Security benefit is equal to your PIA. The age is 66 for folks born between 1946 and 1954. FRA increases by 2 months for each birth year after 1954, up to a (current) maximum of 67 for those born in 1960 or later. For each month before this age that you file for benefits, your benefit will be reduced from the PIA amount; for each month after this age that you delay filing, your benefit is increased from the PIA amount.
Primary Insurance Amount (PIA) – Using the AIME, three amounts (bound by Bend Points) are applied to the average. The amount of your AIME up to the first Bend Point is multiplied by 90%; the amount of your AIME from the first Bend Point to the second Bend Point is multiplied by 32%; and the amount above the second Bend Point up to your total AIME is multiplied by 15%. These three amounts are added together to result in your PIA.
Sterling Raskie, MSFS, CFP®, ChFC®
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Jim,
I filed an application online for myself on February 6, 2018 for my own Social Security benefits to begin in April 2018 on my 70th birthday. My spouse has not yet filed for Social Security benefits. Everything seemed ok until today when I received a letter addressed to me from Social Security Admin in Boston, MA dated February 14, 2018 that had the following, “We are writing to tell you that your spouse filed an application for Social Security benefits on February 6, 2018. Social Security considers an application for Social Security benefits to be a request for benefits for his/her spouse. You are not required to file for benefits at this time. If you file for benefits within 6 months of the date of this letter, we will use February 6, 2018 as the filing date for your claim. You should get in touch with us right away because the date you file an application can make a difference in the amount of benefits we can pay. Call or visit any Social Security office. We will help you fill out the application for Social Security benefits.”
I have two questions: (1) Why did I get this letter when I am the one filing for Social Security benefits but my wife has not filed yet? (2) My wife plans to file a restricted application for spousal benefits only when she reaches her full retirement age of 66 on her birthday in August 2018. We definitely do not want Social Security to use February 6, 2018 as the filing date of her claim since she would not have reached her full retirement age yet. What is our best course of action in this case.
Thanks for your articles. They have been very helpful
.
Respectfully,
Aubrey
It sounds to me like you received the letter in error. I suggest getting in touch with SSA, either via phone or visiting the local office, to make sure they have the right information about you and your wife.