Before you decide when and how to file for Social Security, it’s important to understand the basics.
Everyone’s Social Security decision is a personal one. And the opportunity to enhance retirement income is tremendous. So before you make the choice of a lifetime, it’s important to understand the basics. Let’s discuss some important terms to know and rules you’ll need to consider as part of your decision.
Full Retirement Age (FRA)
This is the age when you are eligible to begin receiving the entirety of the monthly Social Security retirement benefit you are eligible for based on your lifetime employment record (which is your primary insurance amount; more on that below). Historically, full retirement age occurred in the year you turned 65 for those born prior to 1942. FRA began gradually increasing to 67, starting with people born in 1943 or later. Early filing can occur starting at age 62 up to full retirement age. But you can delay filing up to age 70 in order to increase your benefit amount.
Primary Insurance Amount (PIA)
Quite simply, your PIA is the amount of your monthly Social Security benefit at FRA. The formula for calculating PIA benefits differs from formulas typically used to determine pension benefits, which are often based on your top five or last three earnings years, for instance.
PIA is based on lifetime Social Security-covered earnings adjusted for inflation.
- Average indexed monthly earnings over highest 35 years of earnings
- Benefit reflects a percentage of average monthly earnings
- Higher earners receive a smaller percentage than low-wage earners
PIA is capped at $2,861 for 2019. The PIA is also subject to cost-of-living adjustments (COLA), which protect against inflation.
When You File Can Change Your Monthly Benefit
Making a decision about when to file varies based on your individual situation. Your options include early filing, delayed filing or opting to file for benefits at full retirement age. The longer you wait to file, the more your monthly benefit will be. So the decision about when to file can significantly impact your retirement income. That’s why the pros and cons of each option should be carefully considered.
The financial benefit Social Security provides for retirees and their families is great. But the many options may make it difficult to decide what is right for you. Finding your way to the right Social Security filing decision is not something you have to do on your own. Your financial advisor can provide valuable guidance as you navigate the rules.