November 7, 2018 | by Chris Stein, CFP®, Finance Instructor at Colorado State University
Benefit Calculation Before Full Retirement Age

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The following question arrived this week:

“I turned 63 in September 2018. I stopped working at the end of 2017, and do not expect to have a job going forward.  I have over 40 years of taxed SS earnings.  My benefit at Full Retirement Age (FRA) is about $600/month more than my benefit would be if I claim now.

My question is this:

Is my benefit at FRA based upon the assumption that I will continue to earn between now and FRA?  I am trying to determine how much my benefit will be reduced if I claim now, so I need to better understand the benefit at my FRA.”

PSA About PIA and FRA

Great question…  What most people do not realize is that your Primary Insurance Amount (PIA) is determined when you turn 62.  The PIA represents the retirement benefit you are eligible to receive at Full Retirement Age (FRA).  In the years prior to you turning 62, they ESTIMATE this number with a few assumptions, including that you will continue to work until age 62 and earn about what you have the last couple of years.

This all changes when you turn 62.  At this point, you become eligible to file for benefits and they calculate your “official” PIA.  So, they don’t need to estimate anything as they are calculating your actual PIA based on your known earnings history.  This PIA calculation does NOT take into account any earnings after you turn 62.  After this, your earnings record remains unchanged unless you have a future year of earnings that is high enough to replace one of the 35 highest years they used in the PIA calculation.  Low earnings after 62 will NOT reduce your PIA, but high earnings MAY increase your PIA if they are large enough.

The Bottom Line

Bottom line is that the number you have now at age 63 is worst case scenario and will not be reduced due to your choice to work or not.  As you pointed out, your benefit will be reduced for claiming prior to your FRA (the $600 you mention), but that is the only reduction if you stop working.  However, remember that if you continue to work you may be affected by the Earnings Test until you reach FRA

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