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One often thinks of the full retirement age of social security – the age at which one can receive one's full retirement benefit – is 65 years old. It makes sense, because it is the age of eligibility for Medicare and the retirement age for many pension plans, but that is inaccurate. In fact, depending on your date of birth, the retirement age at retirement can reach 67 years, which can have a major impact on your benefits. With this in mind, here's a guide to knowing your complete retirement age to Social Security, what it means for your Social Security benefits and whether this could change in the future.
When can you start collecting Social Security?
To be perfectly clear, your full retirement age from social security (also called "normal" retirement age) is not the one where you will become eligible for Social Security benefits.
Americans eligible for a Social Security pension benefit based on their work history (or spouse) may choose to start receiving benefits at any time between age 62 and 70, regardless of age of retirement. In other words, if your retirement age is 66 and your friend's age is 67, you can choose to apply for Social Security as early as age 62 if you wish, or wait until 70. years. Technically, you can wait as long as you want, but there is no financial benefit to wait after age 70, as we will see later.
Source of the image: Getty Images.
Why your retirement age at Social Security is important
You may be wondering, "But if I can collect Social Security from the age of 62, why is my retirement age important?"
In a nutshell, your retirement age is used to determine the amount of your primary insurance, or PIA. This can be considered your basic Social Security benefit – the amount you can expect to receive each month if you apply for Social Security at your exact retirement age. You may be surprised to learn that relatively few Americans do it. In fact, the majority of them claim social security well before reaching the retirement age.
If you choose to start collecting Social Security at an age other than your retirement age, your benefits will be permanently adjusted up or down to compensate. After all, if you claim Social Security at age 62, you will receive benefits for more than years if you had claimed benefits at, say, 67 years old. It is therefore logical that you receive less each month. And if you claim at age 70, you will receive fewer years of benefits than if you had claimed at a younger age, so it makes sense that you are entitled to a higher monthly payment.
Social security benefits are designed so that the average beneficiary receives the same amount (adjusted for inflation) throughout their lifetime, no matter when they decide to start receiving benefits. Due to the recent increase in life expectancy, the formula is somewhat skewed in favor of people waiting, but it remains fairly close.
How to determine your retirement age from social security
There is no age of full retirement social security that applies to everyone. It depends on your year of birth. If you were born between 1943 and 1954, your retirement age is 66. If you were born in 1960 or later, you reach the age of 67. If you were born between 1954 and 1960, it is between the two.
|
If you were born in … |
Your full retirement age at Social Security is … |
|---|---|
|
1943-1954 |
66 years |
|
1955 |
66 years old, 2 months old |
|
1956 |
66 years, 4 months |
|
1957 |
66 years, 6 months |
|
1958 |
66 years, 8 months |
|
1959 |
66 years, 10 months |
|
1960 or later |
67 years |
Data Source: Social Security Administration (SSA).
Why has the retirement age increased?
In the early 1980s, social security was not really in the best financial situation. In simple terms, too much money has come out of the program in the form of benefits and not enough by payroll taxes.
Congress decided to solve the problem by adopting the 1983 amendments to social security, which extended the solvency of the program by a few decades. One of the amendments called for the gradual raising of the retirement age from 65 to 67 by 2027, in two phases. The first gradually raised the age of full retirement from 65 years for Americans born in 1937 or earlier to 66 years for those born between 1943 and 1954. The second phase concerns people who are currently reaching the age of 62 years of eligibility for social security. at age 67, as shown in the table above.
How your benefit is calculated
Here is a brief overview of the formula used by the Social Security Administration (SSA) to calculate your principal insurance amount, or PIA. Do not forget that it's about your monthly social security benefit if you choose to claim at the age of retirement, no sooner or later.
Note: This calculation method is quite long and complicated to do on your own. If you're just looking for a good estimate of what you can expect, you can get one by reading your latest annual social security return. You can find it at www.ssa.gov – you will need to create a "my social security" account if you have not already done so. Your social security statement contains not only an estimate of your basic insurance amount, based on your actual income, but also valuable information about eligibility for Medicare, the disability benefits you may receive if you become unable to work. before retirement age, benefits. your survivors could have if you died prematurely, and more.
Step 1
First of all, your all the history of earnings is taken into account. The earnings of each year, within the limit of the taxable maximum of the social security for each year, are indexed according to the inflation. For example, the taxable maximum of 1998 was $ 68,400 and the inflation factor factor of 1.69. So, if you earned less than $ 68,400 in 1998, your earnings would be multiplied by that factor. If you earned more than that, $ 68,400 would be multiplied by this factor. This is done for each year you have had a taxable income from Social Security.
2nd step
Then, the earnings of the 35 most inflation-indexed years are added together. If you have less than 35 years of earnings history, zeros are used for the missing years. This sum is then divided by 35 and then by 12 to calculate your average monthly indexed income, or AIME.
Step 3
Your AIME is then used with the applicable social security benefit formula to determine your PIA. For 2018, the formula is as follows:
- 90% of the first $ 895 in AIME
- 32% of the amount greater than $ 895 but less than or equal to $ 5,397
- 15% of the amount greater than $ 5,397
It is important to note that, when calculating your PIA, the formula used is the one that was in effect the year you became eligible for social security, that is, the amount you paid in the year. the year you were 62 years old. You will only use the formula above if you: became 62 in 2018. However, the percentages do not change from year to year, only AIME thresholds (also called "curvature points") .
For 2019, the curvature points of the social security formula increase as follows:
- 90% of the first $ 926 in AIME
- 32% of the amount greater than $ 926 but less than or equal to $ 5,583
- 15% of the amount greater than $ 5,583
So if you turn 62 in 2019, you will use this formula to calculate your PIA.
If you turned 62 before 2018, you can find your waypoints on the SSA website. For example, if you turned 62 in 2015, you will use the amounts of $ 826 and $ 4,980 instead of $ 895 and $ 5,397, respectively, in the formula above, no matter what year you actually claim Social Security. However, you will be entitled to all of the cost of living adjustments (COLA) that you receive between the time you become eligible for benefits and when you claim them.
If you are 62 years old after 2019, it is difficult to accurately estimate your privacy impact assessment because there is no indication of the curvature points of the year in which you will become eligible. .
Once your PIA is calculated, it is used as the base benefit level and is adjusted according to the age at which you actually decide to start receiving benefits.
Do you have to take social security early?
If you apply for your social security benefit before you reach retirement age, your benefits will be permanently reduced compared to your calculated PIA. The SSA uses two rules to determine the exact amount of your benefit reduction, based on the time elapsed before you fully retire.
Rule 1
For each year before the retirement age when you decide to collect benefits, up to three years, your benefits will be permanently reduced by 6.67%. This is determined on a monthly basis, so for every month you claim before the retirement age, this corresponds to a reduction of about 0.56%.
Rule 2
If you claim social security more than three years before reaching the retirement age, your benefits will be further reduced by 5% per year, or about 0.42% per month.
Suppose that your Social Security retirement age is 66 years and four months and you have calculated your PIA at $ 1,500 per month (not including cost-of-living adjustments). If you decide to claim social security at age 62, you will have four years and four months before reaching the retirement age. Thus, your benefit would be reduced as follows:
- 6.67% per annum during the first three years preceding the retirement age, for a total of 20%.
- 5% for the fourth year.
- 0.42% per month for the additional four months, for a total of 1.67%.
The sum of these percentages shows that if you choose to apply for social security at age 62, your US $ 1,500 PIA would be reduced by 26.67%, which would result in a monthly pension benefit of $ 1,100.
Should you wait to claim social security benefits?
On the other hand, if you choose to delay the start of social security until you reach the retirement age, your social security benefits will be permanently increased in relation to your calculated PIA.
After reaching the retirement age, you decide to receive benefits each year, until the age of 70, 8% per year, or about 0.67% per month.
So, if your retirement age is 66 years and four months and you wait until the age of 70, you will benefit from a deferred retirement credit of three years and eight months . Your advantage would be increased as follows:
- 8% per year for the full three years, for a total of 24%.
- About 0.67% for the additional eight months, for a total of 5.33%.
This represents an increase of 29.33%. If your calculated PIA is $ 1,500, it means your benefit would increase to $ 1,940 if you waited until the age of 70 to apply; more any adjustment according to the cost of living given in the meantime.
What if you plan to work after claiming Social Security?
If you are considering working, even part-time, after applying for your Social Security retirement benefit, it is particularly important to know your retirement age.
If you have not yet reached the retirement age, the amount of money you can collect from Social Security while working is limited. The guidelines governing this limit are called Social Security Income Test and two rules may apply to you.
Rule 1
If you reach the age of retirement after 2018 and have already claimed Social Security, $ 1 of your calculated benefits will be withheld for every $ 2 you earn over $ 17,040 per year, or $ 1,420 per month. (For 2019, this threshold is increased to $ 17,640, or $ 1,470 per month.) For example, if you are 62 and earn $ 2,000 per month through employment, it exceeds the earnings threshold by $ 580. . Your social security benefit will be reduced by half that amount, or $ 290 per month. For example, if you normally received $ 1,100 a month, your monthly social security benefits would be reduced to $ 810.
Rule 2
If you reach the age of retirement while 2018, the annual earnings ceiling is set at $ 45,360. This equates to $ 3,780 per month, and only the months preceding the month in which you reach the retirement age are taken into account. Under this earnings test rule, your benefit is reduced by $ 1 for each $ 3 you earn more than the threshold. For 2019, this threshold is increased to $ 46,920 per year, or $ 3,910 per month.
For example, if you turn 66 in April 2019 and earn $ 60,000 a year ($ 5,000 per month), your monthly earnings will be $ 1,090 higher than the 2019 limit. reduce your monthly social security benefit by $ 363.33. However, this will only be implemented for the months of January, February and March 2019, as you will reach the age of retirement in April.
Here is the key point to note: there is It does not exist tests social security earnings once you reach retirement age. At this point, you are allowed to collect all of your social security benefits, regardless of your salary.
It is also important to note that any benefit reduction due to income test is not a waste of money. Once you reach the age of retirement, all benefits will be applied to your future benefits to increase permanently.
Could your retirement age from Social Security change?
The social security program is not in very good financial shape, but it has a lot of money for the moment. By the end of 2017, social security had reserves of about $ 2,900 billion and had a surplus for the year. So, do not let anyone tell you that social security is "broke". This is not it.
However, annual deficits are expected to start this year and continue for the foreseeable future. We expect that they start modestly but grow quickly. In fact, if nothing is done, the program's reserves should be completely exhausted by 2034. The problems that social security is facing are complex, but the abridged version indicates that the massive generation of baby boomers is gradually starting to retire and that the United States has increased since the introduction of the current benefit and tax structure. As a result, more and more people will benefit from social security and the number of workers who will pay for the program through payroll taxes will be insufficient. Historically, there have been approximately 3.2 to 3.4 workers contributing to social security for each retiree receiving benefits. According to forecasts in sub – Saharan Africa, this ratio is expected to fall to 2.2 workers per beneficiary by 2035.
Something must be done in the not-too-distant future to increase the long-term solvency of social security, otherwise the program could run out of money in about 16 years.
To be clear, even if social security Is Short of money, the benefits will not disappear simply. Social security contributions should be sufficient to cover more than three quarters of the benefits, so worst case scenario, Short – term social security would result in a general reduction in benefits of 23%.
History tells us – given the 1983 amendments to social security – that something will be done to remedy the problem. And just like in 1983, it is quite possible that part of the reform that will eventually be adopted includes a gradual increase in the age of retirement. So, if you are still far from retirement, your retirement age from Social Security is currently 67, but it could certainly change before you can qualify for your retirement benefit.
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