Important Social Security Terms to Know
So, let’s get familiar with the important terms you will see on your Social Security Statement.
The first term to get familiar with is your Primary Insurance Amount or PIA. This is the monthly amount you are eligible to start collecting at your Full Retirement Age (FRA). Your PIA is calculated based on your 35 highest earning years. The higher your 35 highest earning years, the higher your PIA. If you have less than 35 years of earnings, zero’s are filled in which will lower your PIA. If you have less than 35 years of work or some years with very low earnings compared to what your currently make, you can increase your PIA by continued work.
Your Full Retirement Age or FRA, is a key milestone when it comes to Social Security. It is based on the year you were born and should be somewhere between age 66 and 67. Your FRA is when you can collect your full PIA amount. Don’t take the term Full Retirement Age too literally, because it does not determine when you should or could retire. There are many other factors aside from Social Security that influence when you truly should or could retire.
You don’t have to wait until your FRA to start collecting benefits. You can claim benefits as early as age 62 (and sometimes earlier for certain situations) or as late as age 70.
If you claim benefits prior to your FRA, you will have a permanent reduction in your lifetime benefit amount. For someone who’s FRA is 66 starts collecting benefits when first eligible at age 62, they will only receive 75% of their PIA which is a 25% reduction. If your FRA is 67, you would only receive 70% of your PIA amount at age 62.
Conversely, if you decide to delay collecting benefits past your FRA, you will receive an 8% annual increase from your PIA amount until age 70, which could be as high as 132% of your PIA if FRA is 66, or 124% if your FRA is 67.
Now that you understand more about your individual benefit, next time I’ll discuss spousal, divorced spousal, and, survivor benefits.
