Calculating the Social Security Retirement Benefit

There are three factors that go into calculating your Social Security retirement benefit – your PIA (Primary Insurance Amount), your FRA (Full Retirement Age), and the age you are when you start receiving benefits. Having these numbers, we need to determine if you are applying for early benefits, and therefore a reduced amount, or if you’re delaying receipt of benefits to increase the payment amount. If you file at exactly your FRA, your benefit will be the same as your PIA.

Applying Early for Reduced Benefit Amount

When you apply early (before your FRA), calculating the Social Security retirement benefit will determine how much your benefit will be reduced from the PIA. First, determine how many months there are between your FRA and the age at which you’ll start receiving benefits. The benefit will be reduced by a percentage based upon the number of months you come up with. The first 36 months are multiplied by 5/9 of 1%, and any months beyond 36 are multiplied by 5/12 of 1%.

So, if your FRA is age 66, and you intend to begin receiving benefits in the month that you are age 62 and 6 months, your PIA would be reduced by 20% for the first 36 months (36 * 5/9% = 20%) plus an additional 2½% for the remaining 6 months (6 * 5/12% = 2½%) for a total of 22½%. The maximum amount that the PIA can be reduced is 25% for folks with FRA of age 66, ranging up to 30% for those with FRA of age 67.

When you come up with this reduction factor, it is then applied to your PIA, and the result is your anticipated benefit amount. You can see in the table below how waiting a few months or years can make a big difference in the benefit amount. And this change can have a huge impact on your lifetime benefits – because once you start receiving your benefit, it won’t change other than with the annual COLA increases – unless you continue to work while receiving benefits, which could increase your PIA.

Delaying Receipt of Benefits to Increase the Amount

If you are delaying your retirement beyond FRA, you’ll increase the amount of benefit that you are eligible to receive. Depending upon your year of birth, this amount will be between 7% and 8% per year that you delay receiving benefits. The increase can be as much as 32% if you delay until age 70 and you were born between 1946 and 1954 – when your FRA is 66 and the increase amount is 8% per year at that age. See the table below for the increase amounts per year based upon birth year:

 Birth Year FRA Delay Credit Minimum (age 62) Maximum (age 70) 1940 65 & 6 mos 7% 77½% 131½% 1941 65 & 8 mos 7½% 76`⅔`% 132½% 1942 65 & 10 mos 7½% 75`⅚`% 131¼% 1943-1954 66 8% 75% 132% 1955 66 & 2 mos 8% 74`⅙`% 130`⅔`% 1956 66 & 4 mos 8% 73`⅓`% 129`⅓`% 1957 66 & 6 mos 8% 72½% 128% 1958 66 & 8 mos 8% 71`⅔`% 126`⅔`% 1959 66 & 10 mos 8% 70`⅚`% 125`⅓`% 1960 & later 67 8% 70% 124%

Above you can see the impact of delaying receipt of retirement benefits. It can amount to more than 50% of the PIA, when you consider early benefits versus late benefits. Of course, by taking benefits later, you’re foregoing receipt of monthly benefit payments during the delay; given this, early in the game you’d be ahead in terms of total benefit received. This tends to go away as the break-even point is reached in your early-80’s in most cases.