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  • Writer's pictureChris Stein, CFP®

Basics of Social Security Retirement Benefits

Since the topic du jour of this blog is Social Security, it seemed fitting that our inaugural post should cover some basics of the Social Security program.  After all, what better way to break in our new followers/readers/fellow blogosphere aficionados and overall Social Security junkies than with a review of eligibility rules and benefit calculations?!

In order to receive a Social Security retirement benefit, you have to first qualify for the benefit by working for wages that are subject to Social Security taxes.  Over the course of your working years you will earn “credited quarters” in the Social Security system. You must amass a minimum of 40 credited quarters in a period of no less than 10 years to be eligible for Social Security retirement benefits.

But just what is a “credited quarter”?

“Quarter”, in this case refers to ¼ of a year.  In 2014, for every $1200 you earn in wages, you receive one credit for one “quarter” of work. You can earn a maximum of four credits in any given year. However, each credited “quarter” is based on earning $1,200 in wages, as opposed to actually working in a specific “quarter” during the year. So… someone could theoretically earn their year’s worth of “quarters” in as little as one day, should that one day’s labor result in Social Security taxable wages of $4,800 or more!

Once you are eligible for a Social Security retirement benefit, the Social Security Administration will calculate your average monthly earnings (called your AIME or Averaged Indexed Monthly Earnings by the actuarial geeks at the SSA) in order to determine the amount of your benefit.  The SSA looks at your highest 40 inflation indexed years of earnings.  They then drop your lowest five years and consider the remaining 35 highest wage earning years to determine your retirement benefit when you reach your Full Retirement Age.

What is your Full Retirement Age (FRA)?  Well, that depends on when you were born.  If you were born between 1943 and 1954, your FRA is 66.  For individuals born in 1960 and later, your FRA is 67, while those born between the years of 1955 and 1959 are subject to a 2-month incremented schedule. For our useful table showing your FRA click here or visit our Resources Section.

Your age at the time you claim your Social Security retirement benefit will also impact the amount you receive. You’re eligible to claim as early as age 62, although your benefit will be roughly 25-30% less than if you waited until your FRA to collect. Conversely, should you delay collecting past your FRA you’ll enjoy significantly higher monthly benefits thanks to the “delayed earnings credit” of 8% annual benefit growth until age 70.

Even this simple overview of Social Security retirement benefits is fairly involved.  Be sure to listen to our audio blog below to hear Jim and I discuss this topic in far greater detail!

To listen to the audio blog, please click the play button below.

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