How PIA Relates to Your Benefit

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If you’ve been looking into your Social Security projected benefits for long, you’ve probably run across the term Primary Insurance Amount, or PIA. Click on the link to see how the PIA is calculated if you need more background information on the PIA.

What’s important to know is that the PIA is essentially the amount of your retirement benefit if you file for it exactly on your Full Retirement Age (FRA) month. But it’s quite common for an individual to file for retirement benefits either before or after FRA. If you file for your retirement benefit before or after FRA, even by a month, there is a difference between your PIA what your benefit will be.

Before FRA

If you file for benefits before the month when you reach FRA, there are two reduction rates that may apply to your benefit, reducing it from the PIA amount. The reason there are two rates is because originally the FRA for everyone was 65. This made it simple to cause a 20% reduction for anyone who started benefits at the earliest age, 62, which was 36 months before FRA. So the reduction factor for any filing up to 36 months before FRA is calculated at a rate of 5/9% (approximately 0.5556%) per month, which works out to 20% for the full 36 months.

Later, when the rules changed such that FRAs could be at ages beyond 65, the original rate of 5/9% per month was deemed too aggressive of a reduction. So a smaller value was determined for reductions beyond the first 36 months of reduction, at 5/12% per month, (approximately 0.4167%). This works out to a 5% reduction for each 12 months beyond the first 36.

Wow, that’s not complicated at all, is it? Geez. Here’s a walkthrough of the formula that you can use to help you calculate the reduction for your benefit before FRA:

 1.  Enter your Full Retirement Age, years and months: 2.  Enter the age you plan to file for benefits, years and months: 3.  Subtract line 2 from line 1 in months only 4.  Subtract 36 from line 3 (if less than zero, enter zero) 5.  If line 4 is zero, skip to line 7; otherwise, multiply line 4 by 5/12% (or 0.004167) 6.  If line 4 is zero, multiply line 3 by 5/9% (or 0.005556); otherwise, enter .2 7.  Add line 6 to line 5 8.  Subtract line 7 from 1.0000 9.  Multiply line 8 by your PIA.  This is your reduced benefit amount.

Let’s run an example. An individual born in 1955, so his FRA is 66 years and 2 months. His PIA is \$2,000, and he intends to file for benefits at age 64 years and 6 months.

 1.  Enter your Full Retirement Age, years and months: 66y 2m 2.  Enter the age you plan to file for benefits, years and months: 64y 6m 3.  Subtract line 2 from line 1 in months only 20 4.  Subtract 36 from line 3 (if less than zero, enter zero) 0 5.  If line 4 is zero, skip to line 7; otherwise, multiply line 4 by 5/12% (or 0.004167) 6.  If line 4 is zero, multiply line 3 by 5/9% (or 0.005556); otherwise, enter .2 .11112 7.  Add line 6 to line 5 .11112 8.  Subtract line 7 from 1.0000 .88888 9.  Multiply line 8 by your PIA.  This is your reduced benefit amount. \$1,777.76

Now let’s adjust the example so that it uses the additional factor. Same individual as above, but now he plans to retire at age 62 years and 8 months.

 1.  Enter your Full Retirement Age, years and months: 66y 2m 2.  Enter the age you plan to file for benefits, years and months: 62y 8m 3.  Subtract line 2 from line 1 in months only 40 4.  Subtract 36 from line 3 (if less than zero, enter zero) 4 5.  If line 4 is zero, skip to line 7; otherwise, multiply line 4 by 5/12% (or 0.004167) .016668 6.  If line 4 is zero, multiply line 3 by 5/9% (or 0.005556); otherwise, enter .2 .200000 7.  Add line 6 to line 5 .216668 8.  Subtract line 7 from 1.0000 .783332 9.  Multiply line 8 by your PIA.  This is your reduced benefit amount. \$1,566.66

Now let’s look at how applying after FRA works.

After FRA

For every month after FRA that you delay applying, your benefit will grow by a factor. For folks born in 1943 and later, the factor is 2/3 of a percent, or roughly 0.6667%. If you were born in 1941 or 1942 (earlier years don’t matter at this point, you’re already 70), the factor is 15/24 of a percent, or approximately 0.625%. These factors equate to 8% per year for those born in 1943 or later, or 7.5% per year for those born earlier.

Here’s a formula to use to help calculate the delay factor and benefit amount for your situation:

 1.  Enter your Full Retirement Age, years and months: 2.  Enter the age you plan to file for benefits, years and months (if after 70, enter 70y 0m): 3.  Subtract line 1 from line 2 in months only 4.  If your FRA is less than 66, multiply line 3 by 15/24% (or 0.00625); otherwise multiply line 3 by 2/3% (or 0.006667) 5.  Add 1.00000 to line 4 6.  Multiply line 5 by your PIA.  This is your increased benefit amount.

Let’s run through an example. The individual from above, with a FRA of 66 years and 2 months, and a PIA of \$2,000, decides to file for benefits at the age of 68 years and 6 months.

 1.  Enter your Full Retirement Age, years and months: 66y 2m 2.  Enter the age you plan to file for benefits, years and months (if after 70, enter 70y 0m): 68y 6m 3.  Subtract line 1 from line 2 in months only 28 4.  If your FRA is less than 66, multiply line 3 by 15/24% (or 0.00625); otherwise multiply line 3 by 2/3% (or 0.006667) .186676 5.  Add 1.00000 to line 4 1.186676 6.  Multiply line 5 by your PIA.  This is your increased benefit amount. \$2,373.35

And that’s it.  Hope this has helped you to better understand how your PIA and your benefit are related.