Glossary

Adjustment of the Reduction Factor

The Adjustment of the Reduction Factor (ARF) prevents your benefits after full retirement age FRA from being reduced because of early benefits you did not actually receive due to the earnings test. It cannot lower, and will only increase, your benefits if it is applied.

Social Security benefits received before a beneficiary's FRA will be reduced if they have covered earnings above the exempt amount. Spouse's and widow(er)'s benefits can be reduced due to either or both spouses having covered earnings exceeding the exempt amount before FRA.

The earnings test is two tiered:

  • Before FRA Year: the benefit is reduced by $1 for every $2 earned over the exempt amount. This reduces the benefits by ½ of the earnings over the exempt amount.
  • In FRA Year: the benefit is reduced by $1 for every $3 earned prior to the FRA over the full annual exempt amount. If applicable, this reduces the benefits by 1/3 of the earnings over the exempt amount.

After FRA, the earnings test is not applied.

The ARF is applied upon attainment of FRA for beneficiaries who began receipt of retirement, spouse's, or widow(er)'s benefits early and had earnings in excess of the exempt amount.

We calculate the ARF under three circumstances:

  1. You began receipt of retirement benefits early and your benefits were reduced due to the earnings test.
  2. You began receipt of spouse's benefits early and your benefits were reduced due to the earnings test applied to either your or your spouse's earnings.
  3. You began receipt of widow(er)'s benefits early and your benefits were reduced due to the earnings test.

The adjusted benefit reduction factor is recalculated after excluding months of work deductions (including partial deductions) from the months used to determine the original benefit reduction factor.

Age

Social Security uses your exact birthdate to determine, among other things, when you become eligible and when you can begin actual receipt of your benefits as well as when you attain your full retirement age (FRA). Social Security follows common law in that a person attains an age on the day before the anniversary of his or her date of birth. A person born on November 1, 2011 attained age 1 on October 31, 2012. People born on the 1st or 2nd of the month are considered to be 62 for their entire birth month. People born on the 3rd and later are not considered to have been 62 for their entire birth month and therefore become eligible for early benefits in the month after their birth month.

You also become eligible for full retirement benefits on the day before you attain your FRA. However, you do not have to be your FRA for the entire month to be eligible. For instance, if you were born on August 1, 1945, FRA was attained on July 31, 2011 and you became entitled to unreduced benefits beginning in July 2011.

Because Social Security pays one month in arrears, you will not receive your first benefit check until the following month. This means, for those born on the 3rd of the month or later and who claim earliest benefits, you will not receive your first check until 2 months after the month that you attain age 62

Average Indexed Monthly Earnings

When Social Security computes an insured worker's benefit, it first adjusts or "indexes" his or her earnings to reflect the change in general wage levels that occurred during the worker's years of employment. Such indexation ensures that a worker's future benefits reflect the general rise in the standard of living that occurred during his or her working lifetime.

Up to 35 years of earnings are needed to compute average indexed monthly earnings. After Social Security determines the number of years, it chooses those years with the highest indexed earnings, sums such indexed earnings, and divides the total amount by the total number of months in those years. It then rounds the resulting average amount down to the next lower dollar amount. The result is the AIME.

An insured worker becomes eligible for retirement benefits when he or she reaches age 62. If 2013 were the year of eligibility, Social Security would divide the national average wage index for 2011 (42,979.61) by the national average wage index for each year prior to 2011 in which the worker had earnings and multiply each such ratio by the worker's earnings. This would give the indexed earnings for each year prior to 2011. Social Security would consider any earnings in or after 2011 at face value, without indexing. Then it would compute the AIME and use this amount in computing the worker's primary insurance amount for 2013.

Base Years

Base years are all the years you are alive after age 16 and after 1950. They are the years you can potentially earn credits for covered quarters, including the years after you first become eligible for retirement benefits at 62.

Bend Points

Bend points divide your AIME into portions that contribute varying percentages to your PIA: 90% of the lowest portion under the first bend point, 32% of the middle portion between the bend points, and 15% of the amount above the second bend point.

Benefit Filing Dates

These fields ask for the dates you want to become entitled to receive retirement, spousal, and survivor benefits. When you click the Apply Filing Dates button at the bottom of the screen, you may see as many as three of the retirement and spousal filing dates change. This is because we apply Social Security's deeming and other provisions that limit what combination of retirement and spousal entitlement dates a married couple can choose. Note that the program asks you to enter the date you will become entitled to the benefit in question. Note also that Social Security pays checks one month in arrears of a worker's entitlement to a benefit.

Benefit Reduction for Early Retirement

Social Security calls a retired worker the primary beneficiary, because it is upon his or her primary insurance amount that all dependent and survivor benefits are based. If the primary becomes entitled to benefits at his or her normal (or full) retirement age, the primary will receive 100 percent of the primary insurance amount. If the spouse of a primary becomes entitled to benefits at his or her normal retirement age, the spouse will receive 50 percent of the primary's primary insurance amount.

The table below illustrates the effect of early retirement, for both a retired worker and his or her spouse. For this illustration, Social Security used a $1,000 primary insurance amount. With this primary insurance amount and both primary and spouse retiring at their respective normal retirement ages, the primary would receive $1,000 per month and his/her spouse would receive $500 per month. The table shows that retirement at age 62 results in substantial reductions in monthly benefits. Please note that relatively few people can begin receiving a benefit exactly at age 62 because a person must be 62 throughout the first month of retirement. Thus most early retirees begin at age 62 and 1 month.

Year of birtha Normal (or full) retirement age Number of reduction monthsb Primary Spouse
Amount Percent reductionc Amount Percent reductiond
1937 or earlier 65 36 $800 20.00% $375 25.00%
1938 65 and 2 months 38 791 20.83% 370 25.83%
1939 65 and 4 months 40 783 21.67% 366 26.67%
1940 65 and 6 months 42 775 22.50% 362 27.50%
1941 65 and 8 months 44 766 23.33% 358 28.33%
1942 65 and 10 months 46 758 24.17% 354 29.17%
1943-1954 66 48 750 25.00% 350 30.00%
1955 66 and 2 months 50 741 25.83% 345 30.83%
1956 66 and 4 months 52 733 26.67% 341 31.67%
1957 66 and 6 months 54 725 27.50% 337 32.50%
1958 66 and 8 months 56 716 28.33% 333 33.33%
1959 66 and 10 months 58 708 29.17% 329 34.17%
1960 and later 67 60 700 30.00% 325 35.00%

aIf you are born on January 1, use the prior year of birth.
bApplies only if you are born on the 2nd of the month; otherwise the number of reduction months is one less than the number shown.
cReduction applied to primary insurance amount ($1,000 in this example). The percentage reduction is 5/9 of 1% per month for the first 36 months and 5/12 of 1% for each additional month.
dReduction applied to $500, which is 50% of the primary insurance amount in this example. The percentage reduction is 25/36 of 1% per month for the first 36 months and 5/12 of 1% for each additional month.

Child in Care Spouse’s Insurance Benefit

Having a child in care may allow you to claim spouse's benefits if you have not yet reached 62 and may also make you eligible for mother's and father's insurance. You have a child in care if you have parental control, as defined by Social Security, over a child who is under 16 or who is 16 or older and is disabled.

Child Insurance Benefit

A child can claim child insurance benefits on a parent's record if the child is dependent on that parent as defined by Social Security and if the child is not married. The child also must either be under 18, or be 18-19 and a full time elementary or secondary school student.

Further, the parent on whose record the claim is based must be entitled to disability or retirement insurance.

The child insurance benefit is equal to 50% of the insured parent's PIA if the insured parent is currently entitled to a retirement benefit.

Computation of the Retirement and Survivor Family Maximum

The formula used to compute the family maximum is similar to that used to compute the Primary Insurance Amount (PIA). The formula sums four separate percentages of portions of the worker's PIA. For 2013 these portions are the first $1,011, the amount between $1,011 and $1,459, the amount between $1,459 and $1,903, and the amount over $1,903. These dollar amounts are the "bend points" of the family-maximum formula. Thus, the family-maximum bend points for 2013 are $1,011, $1,459, and $1,903. See table showing bend points for years beginning with 1979 (table also shows PIA formula bend points).

For the family of a worker who becomes age 62 or dies in 2013 before attaining age 62, the total amount of benefits payable will be computed so that it does not exceed:

(a) 150 percent of the first $1,011 of the worker's PIA, plus
(b) 272 percent of the worker's PIA over $1,011 through $1,459, plus
(c) 134 percent of the worker's PIA over $1,459 through $1,903, plus
(d) 175 percent of the worker's PIA over $1,903.

We then round this total amount to the next lower multiple of $.10 if it is not already a multiple of $.10.

Determination of family-maximum bend points for 2013
Amounts in formula
Average wage indices
For 1977: 9,779.44
For 2011: 42,979.61

Bend points for 1979
First: $230
Second: $332
Third: $433

Computation of bend points for 2013
First bend point
$230 times 42,979.61 divided by $9,779.44 equals $1,010.83, which rounds to $1,011
Second bend point
$332 times 42,979.61 divided by $9,779.44 equals $1,459.11, which rounds to $1,459
Third bend point
$433 times 42,979.61 divided by $9,779.44 equals $1,902.99, which rounds to $1,903

Computation Years

The number of computation years for retirement benefits is five less than the number of elapsed years on your record. For most people now, 40 elapsed years are reduced to 35 computation years.

Constant Year Dollars

Constant dollars are the same as real dollars below.

Cost of Living Allowances (COLAs)

COLAs are applied to years after you become eligible in order to maintain the purchasing power of retirement benefits. They become effective in December and are applied when the Consumer Price Index (CPI) rises.

Covered Earnings

Earnings covered by Social Security are those for which you paid Social Security taxes, either by having them withheld from your paycheck or by paying Social Security taxes on earnings from self-employment.

Covered Quarters – Necessary Earnings

For earnings before January 1, 1978, if you earned $50 in a specific quarter, you receive 1 credit for that quarter, up to 4 credits for covered quarters per year. For earnings after December 31, 1977, you receive from 0 to 4 credits based on your total income for the year. In short, before 1978 income had to be in a particular calendar quarter to count as a covered quarter and after the end of 1977, yearly earnings are divided by changing amounts specified by Social Security to determine how many credits for covered quarters—from 0 to 4—are assigned to a worker's record for that year.

In addition to the past earnings thresholds, we estimate future thresholds using the estimates you give us for future inflation along with the Intermediate assumptions of future real wage growth from the Social Security Trustee’s Report. Social Security does not adjust the earnings per credit thresholds for future wage growth when they calculate benefits on your Social Security statement. Workers born on January 2, 1929 and later must have at least 40 credits for covered quarters to qualify for retirement benefits. For those born before January 2, 1929, the number steadily declines in accordance with earlier and earlier birthdates.

Deeming Provision

The deeming provision states that if you are eligible for both reduced retirement and reduced spouse's benefits, then you cannot restrict your application to just one of these types of benefits. By filing for either benefit, you are deemed by law to have filed for both types of benefits.

Delayed Retirement Credit

The full retirement age (FRA) is 65 for people born on or before January 1, 1938 and gradually rises for people born between then and January 2, 1960, when the FRA levels off at 67. Although you can choose to become entitled to permanently reduced early benefits at 62, you can also delay entitlement past your FRA and gain permanent increases in your retirement benefit amount. You only earn these benefits by delaying entitlement till age 70, so further delay does not make sense.

However, simply delaying all or part of the way to 70 is not always the optimal choice. Married couples can often see significant increases in lifetime benefits by delaying entitlement to some benefits but not others. Very often, one of the strategies described below will provide higher lifetime benefits.

If you are single and never married, delaying as long as possible might make the most sense. If you are single and divorced or widowed, we recommend how best to sequence becoming entitled to your retirement benefits and any spousal or widow(er)’s benefits you might be eligible for. For example, if you are a single parent, it may be advantageous to become entitled to reduced retirement benefits early to enable child benefits sooner and then suspend receipt if your benefits until age 70.

You pay for your future increased benefits by foregoing being entitled for a number of years. Under our assumptions of a relatively high maximum age of life rather than an actuarial mean life expectancy, delaying frequently makes sense. However, if you are approaching your maximum age of life, delaying entitlement would probably make little sense.

Disabled Child Insurance Benefit

A child can claim disabled child insurance benefits on a parent's record if the child meets all of the conditions to receive child insurance benefits and if he or she is 18 or older and under a disability as defined by Social Security, which must also have begun before the child reached age 22.

The disabled child insurance benefit is equal to 50% of the insured parent’s PIA if the insured parent is currently entitled to a retirement benefit. The benefit amount might be reduced by the Family Maximum. The benefit amount also might be reduced if a disabled child is entitled to a disability or retirement insurance benefit based on his or her own record, in which case, only the amount by which the child's monthly benefit rate exceeds the his or her retirement or disability insurance amount is paid as the disabled child insurance benefit.

Discounting

Discounting expresses the value in the present (the present value) of your future benefits. Your lifetime benefits are the sum total of the present values of each future year's benefits. All annual benefit amounts are adjusted for inflation, i.e., they are presented in today's dollars. But a dollar of purchasing power that you'll receive in, say, 20 years is not the same as having that dollar of purchasing power today. The reason is that if you had a dollar of purchasing power today, you could invest it for 20 years, earn a real return each year, and expect to have more than $1 of purchasing power 20 years from now. So $1 of purchasing power received in 20 years is not the same as having $1 of purchasing power today. In discounting your inflation-adjusted future benefits, we are taking into account this time value of money. Failing to discount and simply adding up annual benefit amounts is the same as assuming no future real return on investments. Doing so can greatly overstate the value of your lifetime Social Security benefits and lead to highly inappropriate Social Security benefit collection advice.

Divorced Spouse’s Insurance Benefit

You can claim divorced spouse's insurance benefits if your ex-spouse is currently entitled to retirement or disability insurance benefits. You must be single and 62 or over and you must have been married to your ex-spouse for at least 10 years. Also, you cannot claim this benefit if your PIA exceeds or equals one half of your ex-spouse's PIA and you are currently entitled to retirement or disability insurance.

If your ex-spouse is not currently entitled to retirement or disability insurance benefits, but he or she has attained age 62 and is fully insured, you can become independently entitled to benefits on your ex-spouse’s record if you meet all of the other requirements in the preceding paragraph and have been divorced for at least two continuous years.

Divorced Widow(er)’s Insurance Benefit

You may be eligible for divorced widow(er)’s insurance benefits if you were married to your deceased ex-spouse for at least 10 years. You must also be age 60 or over, or at least age 50 but under 60 and meet the disability requirements as defined by Social Security. Your deceased ex-spouse must also have been fully insured; you must be single; and you must not be entitled to a retirement insurance benefit equaling or exceeding your deceased ex-spouse’s PIA. The same limitations as above apply to divorced widow(er)’s benefits if your deceased ex-spouse was ever entitled to reduced retirement benefits.

Early Retirement Benefit Reduction Factor

Reductions are applied to any benefits you become entitled to before your Full Retirement Age (FRA). The reductions are determined by first calculating your Primary Insurance Amount (PIA) at FRA, and then reducing this amount by a specified percentage for each month you are entitled before your FRA.

Earnings Test

The retirement earnings test applies only to people below normal retirement age (NRA). Social Security withholds benefits if the worker's earnings exceed a certain level, called a retirement earnings test exempt amount, and if you are under your NRA. One of two different exempt amounts apply — a lower amount in years before the year you attain NRA and a higher amount in the year you attain NRA. These exempt amounts generally increase annually with increases in the national average wage index. However, once the worker reaches NRA, his/her monthly benefit will be increased permanently to account for the months in which benefits were withheld.

For people attaining NRA after 2013, the annual exempt amount in 2013 is $15,120. For people attaining NRA in 2013, the annual exempt amount is $40,080. This higher exempt amount applies only to earnings made in months prior to the month of NRA attainment.

Social Security withholds $1 in benefits for every $2 of earnings in excess of the lower exempt amount. It withholds $1 in benefits for every $3 of earnings in excess of the higher exempt amount. Earnings in or after the month the worker reaches Normal Retirement Age do not count toward the retirement test.

Year Lower amounta Higher amountb
2000 $10,080 $17,000
2001 10,680 25,000
2002 11,280 30,000
2003 11,520 30,720
2004 11,640 31,080
2005 12,000 31,800
2006 12,480 33,240
2007 12,960 34,440
2008 13,560 36,120
2009 14,160 37,680
2010 14,160 37,680
2011 14,160 37,680
2012 14,640 38,880
2013 15,120 40,080

aApplies in years before the year of attaining NRA.
bApplies in the year of attaining NRA, for months prior to such attainment.

Elapsed Years

Elapsed years can be thought of as what Social Security considers a full lifetime career of earnings in covered employment. Elapsed years are the calendar years after you turn 21 or 1950, whichever is later, up to and including the year before age 62, death, or disability, whichever is earlier.

Eligibility

Eligibility refers to the ability to file a claim for a particular benefit. For example, you become eligible for early reduced retirement benefits when you have the necessary credits for quarters of covered earnings and you have reached age 62. You become eligible for your full retirement benefit when you have the necessary credits for quarters of covered earnings and you have attained your full retirement age (FRA).

Entitlement

Entitlement refers to both being eligible for a particular benefit and having filed a claim for that benefit. In other words, you can be eligible for a benefit, but you do not become entitled to it until you file a claim for the benefit.

Family Maximum Benefit

You might think that Social Security’s Family Benefit Maximum is what it sounds like -- a straightforward ceiling on the total amount that you, your spouse, and your children can receive on your earnings record. But nothing in Social Security’s benefit provisions is straightforward.

First, there’s a rather weird formula for calculating the Family Maximum Benefit (FMB). If your own full retirement benefit, called your Primary Insurance Amount (PIA), is very low, your FMB will be 150 percent of your PIA. With a somewhat higher PIA, the Maximum rises to 187 percent of your PIA. Then the multiple drops, ending up at 175 percent of your PIA.

This mean the maximum Auxiliary Benefits – the benefits available to the other family members less the worker’s PIA are 50 percent of the very low income worker’s PIA, 87 percent of the moderate income worker’s PIA, and 75 percent of the high earner’s PIA. Not exactly a model of progressivity.

Second, if the worker takes her benefits early, say at 62, her retirement benefit will be reduced to 75 percent of her PIA. In this case, the most the family, including the worker, would receive is 75 percent of her PIA (her reduced retirement benefit) plus 50 percent of her PIA -- the most left over for the spouse and kids after subtracting the PIA, not her actual benefit received from the FBM. In this case, the total amount the very low earner family, including the earner herself, can receive is not 187 percent of the worker’s PIA. Nor is it 175 percent or 150 percent of the PIA. It’s 125 percent.

Next suppose the worker is a moderate earner and has a FMB equal to 187 percent of her PIA. Further assume this worker waits until 70 to collect her retirement benefit. In this case her own retirement benefit is 1.32 times her PIA and the maximum Auxiliary Benefits are 87 percent of her PIA. Hence, the largest amount the moderate earner family, including the earner herself, could receive is 219 percent of the worker’s PIA.

Father's and Mother's Insurance Benefit

If you are a widow(er), you can claim father’s or mother's insurance benefits if your deceased spouse was either fully or currently insured when he or she died and you are not eligible for retirement insurance benefits equaling or exceeding the amount of your deceased spouse’s insurance benefit. You must also have in care a child of your deceased spouse who is under 16 or who is entitled to disabled child insurance benefits. Further, you must not be married, must not be entitled to widow(er)'s insurance benefits, and must have been married to your deceased spouse at least 9 months.

Your father's or mother's insurance benefit is equal to 75% of your deceased spouse’s PIA at the time of death. It might also be reduced if you are also entitled to a smaller retirement or disability insurance benefit, in which case an amount equal to the difference between the father’s or mother’s insurance benefit amount and the other benefit is paid as the father's or mother's benefit in addition to the other benefit.

File and Suspend

Upon reaching retirement age, one has the option to file for retirement benefits and suspend their collection. Doing so permits one's spouse to collect spousal benefits on one's earnings record.

Full Retirement Age

Full retirement age is the age at which a person may first become entitled to full or unreduced retirement benefits. The full retirement age for those born between 1943 and 1954 is 66. For those born before 1943, it is lower. For cohorts born after 1954, it will gradually rise to age 67 for those born in 1960 or later.

Full Retirement Benefit

This is the retirement benefit available to a worker based on his or her own work history assuming the worker applies for your retirement benefit at his or her full retirement date. Social Security refers to a worker's Full Retirement Benefit as his/her Primary Insurance Amount.

Future Year Dollars

Future year dollars are the same as nominal dollars below.

Government Pension Offset (GPO)

If you receive a pension based on your employment by the US federal government, state governments, or other political subdivisions not covered by Social Security, then any spouse’s, divorced spouse’s, widow(er)’s, divorced widow(er)’s, or deemed spouse’s benefits may be reduced if you receive periodic payments based on that employment.

For everyone who began or will begin receipt of his or her government pension in December 1984 or later, the GPO reduces your Social Security benefit by two-thirds of the amount of your government pension.

Indexed Earnings

All previous yearly income amounts are indexed by the same proportion that the national average wages for the base year of indexing increased, or decreased, compared to each previous year. Put simply, all wages earned before retirement benefit eligibility are expressed as a proportion of your wages in your index year.

Index Year

The year Social Security uses to index your previous yearly income is your index year. This is the second year before you turn 62 or the year of becoming disabled or death. For instance, if you retire in 2020 at 65, your base year for indexing will be 2015.

Inflation Rate

Typically, prices increase over time, though they can of course also deflate or stagnate. Factoring inflation rates into our results allows us to express future dollar amounts in real, present-year values.

Insured Status

In order to receive retirement benefits, you must have achieved fully insured status. You have fully insured status if you have at least one Social Security credit, covered quarter, for each year after 1950 or, if you turned 21 after 1950, you have at least one credit for each year after age 21 and before age 62 or, if earlier, the year of becoming disabled or death. For most people, this means you need to have credits for 40 quarters of covered earnings.

Lifetime Benefits

This is the total amount of benefits you can receive over the course of your life. After you enter your information and we run our calculations, we present your maximized lifetime benefits you can receive by following our recommendations as well as the lifetime benefits you would receive using your selected dates.

Your total lifetime benefits are the discounted present value of your annual benefits and will always be less than the simple sum of all your undiscounted annual benefits.

Maximum Taxable Earnings

We estimate future taxable earnings limits using the estimates you give us for future inflation along with the Intermediate assumptions of future real wage growth from the Social Security Trustee’s Report. Social Security does not adjust the maximum taxable earnings for future wage growth when they calculate benefits on your Social Security Statement.

The maximum taxable earnings for 2013 was $113,700 and for 2014 the maximum is $117,00.

Maximum Age of Life

This is how long you will live. Because this is fundamentally unpredictable, we recommend selecting a high age, 100. This is for the simple reason that you might not die when actuarial life expectancies say you are supposed to.

Maximized Dates

These are the benefit filing dates we calculate to provide maximum lifetime household benefits using the assumptions and information you enter.

On the Social Security application, use these dates for the entitlement month, which is the month when Social Security benefits are first earned.

Since Social Security pays one month in arrears, you will receive your first check one month after your filing/entitlement month. If MMSS recommends filing for (becoming entitled to) benefits in December 2015, this is your entitlement month, so enter December 2015 on the Social Security application. You will receive your first check in January 2016.

Social Security also encourages applying 3 to 4 months before the entitlement date. In the above example, if the application is made in September 2015, the entitlement month must be established as December 2015.

The most important advice is to access the Social Security website and get their most current official guidance on how to apply.

Maximized Results

These are our recommendations for your benefit filing strategy that will yield the most benefits over the lifetime of the household. We compare these to your selected benefit filing dates so you can how much more you can receive by following our suggested strategy.

Monthly Benefit Amounts

Monthly retirement benefits derived from the PIA may be higher or lower than the PIA. We pay reduced benefits to one who retires before his/her normal retirement age. A person cannot collect retirement benefits before age 62. In the case of a person retiring at exactly age 62 in 2013, the benefit will be 25 percent less than the person's PIA. Benefits can be higher than the PIA if one retires after the normal retirement age. The credit given for delayed retirement -- the Delayed Retirement Credit -- will gradually reach 8 percent per year for those born after 1942. No delayed retirement credit is given after age 69.

National Average Wage Index (NAWI)

We estimate the future NAWI including real growth estimates from the Social Security Trustees' intermediate assumptions and your estimate of inflation. Social Security does not adjust the NAWI for future wage growth when they calculate benefits on your Social Security Statement.

Nominal Dollars

Nominal dollars are dollars expressed in the value they have in the relevant year. Nominal dollars in the present year are the equal to real dollars in the present year: the face value of the money.

However, because $1 in the future will have lower purchasing power than it does today if there is inflation, the dollar amount of future nominal amounts will be higher than an amount with the same purchasing power today expressed in today's dollars. Similarly, an amount expressed in past nominal dollars will have the same purchasing power today as a higher dollar amount expressed in today’s dollars.

Nominal Growth

Nominal growth describes growth over time before adjustment for inflation.

Nominal Rate of Return

The nominal rate of return is the rate at which your investment will grow over time before adjustment for inflation.

Non-Covered Pensions

These are pensions that are being received or will be received based on work for which no Social Security payroll taxes were deducted. Unlike private sector workers, not all state and local employees are covered by Social Security. Some are covered only by their public retirement pension program. Such workers may earn money in other jobs that are covered by Social Security. In this case, their Social Security benefits arising from this covered employment are limited by the Windfall Elimination Provision. In addition, the spousal and survivor benefits available to such workers are limited by the Government Pension Offset provision.

Present Value

The present value is the value of past or future dollars today. Future values must be discounted to determine their present value. See Real Dollars, Real Growth, and Real Rate of Return below.

Primary Insurance Amount (PIA)

This is a worker's full retirement benefit. It is calculated via a progressive benefits formula based on your Average Indexed Monthly Earnings. The PIA is the sum of three separate percentages of portions of the AIME. While the percentages of this PIA formula are fixed by law, the dollar amounts in the formula change annually with changes in the national average wage index. These dollar amounts, called "bend points," govern the portions of the AIME. The bend points in the year 2013 PIA formula, $791 and $4,768, apply for workers becoming eligible in 2013. See the table of bend points for the bend points applicable in past years.

For example, a person who had maximum-taxable earnings in each year since age 22, and who retires at age 62 in 2013, would have an AIME equal to $8,539. Based on this AIME amount and the bend points $791 and $4,768, the PIA would equal $2,550.10. This person would receive a reduced benefit based on the $2,550.10 PIA. The first Cost of Living Adjustment this individual could receive is the one effective for December 2013.

PIA Formula

For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2013, or who dies in 2013 before becoming eligible for benefits, his or her PIA will be the sum of:

  1. 90 percent of the first $791 of his/her average indexed monthly earnings, plus
  2. 32 percent of his/her average indexed monthly earnings over $791 and through $4,768, plus
  3. 15 percent of his/her average indexed monthly earnings over $4,768.

Real Dollars

Real dollars are nominal dollars (see above) after adjustment for inflation. We use present-year real dollars to express the value of future benefits in terms of their current purchasing power.

Real Growth

Real growth describes growth over time after adjustment for inflation.

Real Rate of Return

The real rate of return is how much you can gain by investing your money for a period of time after adjustment for inflation.

Recomputation of Benefits

Your PIA might be increased, but will never be decreased, due to recomputation. Your PIA will be automatically recomputed if you have earnings in any year during which you are entitled to retirement or disability insurance benefits.

If your earnings in an added base year subsequent to such entitlement are higher than earnings in the lowest computation year used in a previous computation of benefits, then your PIA will be increased. This is the case for all years you have substantial earnings after disability or retirement insurance benefit entitlement.

The recomputation becomes effective in January of the year after the earnings were generated: an increased benefit due to a recomputation based on 2015 earnings will first be applied to the payment for January 2016.

Retirement Benefit

When workers work and pay Social Security taxes, they earn "credits" toward Social Security benefits. The number of credits needed to get retirement benefits depends on when you were born. Workers born in 1929 or later need 40 credits (10 years of work).

Retirement Date

This references the last date that a worker intends to work in covered employment, i.e., in a job where payroll taxes are withheld.

Selected dates

These are the benefit filing dates you can compare to your maximized dates for filing for retirement, spousal, and survivors benefits.

We only allow dates that are allowed by Social Security. Dates that Social Security does not allow will be changed to the earliest allowed dates.

Using birthdates, we determine the earliest allowed filing dates for reduced early benefits, the earliest allowed filing date for and the amount of the full retirement benefits, and the latest date it makes sense to file for retirement benefits. Filing dates beyond these parameters will not be accepted.

Spousal Benefits Eligibility Rule

A spouse is not eligible for spousal benefits until his or her spouse, the worker off of whose record the spousal benefits will be based, files for his or her retirement benefit.

Spouse's Insurance Benefit

At FRA, a spouse is eligible for the larger of his or her retirement benefit based on his or her own record or ½ of the retirement benefit his or her spouse will be eligible for at his or her FRA based on that spouse's record.

If the retirement benefit a spouse would receive based on his or her own record is less than half of the retirement benefit his or her spouse would receive at his or her FRA based on that spouse’s record, the excess spouse’s insurance benefit at FRA is the difference between the retirement benefit a spouse is entitled to and ½ of the benefit his or her spouse would receive at FRA.

The spousal benefit eligibility rule stipulates that no matter his or her age, a spouse is not eligible for spouse’s benefits until the spouse whose earnings the claim is based on files for his or her retirement benefits. If you are eligible for both reduced retirement and reduced spouse’s benefits and you file for either, you will be deemed by law to have applied for both.

Start/Stop/Restart Strategy

Once you start collecting your retirement benefit, you can stop receipt provided you have attained your FRA. You can then restart receipt of retirement benefits at a later date, having earned permanent increases in your retirement amount by delaying receipt up to age 70.

Substantial Earnings' Effect on the Windfall Elimination Provision (WEP)

If you have 20 or fewer years of substantial earnings the WEP reduces the factor by which the segment of your earnings below the first bend point is multiplied from 90% to 40%. However, the WEP reductions to your Social Security retirement insurance benefit will be lowered or eliminated if you have 21 to 30 years of substantial earnings in employment covered by Social Security.

Surviving Child Insurance Benefit

A child is eligible for a surviving child insurance on a deceased parent's record if all the conditions to receive child insurance benefits are met and the child was also dependent on the deceased parent and the deceased parent was either fully or currently insured at the time of death.

The surviving child insurance benefit is equal to 75% of the deceased parent’s PIA at the time of death.

Time Value of Money (TVM)

Money has what's called a time value because if you are patient and invest you can earn a return on your investment. If this return exceeds the rate of inflation, you'll receive not just a return, but a real return.

See also Discounting above.

Widow(er)'s Insurance Benefits

If you were married to your deceased spouse at least 9 months and you are 60 or above, or if you are at least age 50 but under 60 and you meet the disability requirements as defined by Social Security, you may be eligible for widow(er)'s benefits. You also must not have remarried before age 60, your deceased spouse must have achieved fully insured status, and you must not be entitled to a retirement insurance benefit that equals or exceeds your deceased spouse's PIA.

Your unreduced widow(er)'s benefit is equal to your deceased spouse's PIA at FRA plus any increases to his or her retirement insurance benefit he or she earned by delaying entitlement to retirement benefits past his or her full retirement age (FRA).

If your spouse died before age 62, we calculate your widow(er)'s benefit as the maximum of the benefit under the standard method and your benefit under the WINDEX method.

Your widow(er)'s benefit is limited if your deceased spouse was ever entitled to reduced retirement benefits. The benefit you can claim as a widow(er) on his or her record is limited to the higher of either 82.5% of your deceased spouse's retirement benefit at his or her FRA, or the amount your deceased spouse was collecting at the time of death. In cases such as this, since your widow(er)'s benefit is limited, it will be advantageous to take a reduced widow(er)'s benefit before your FRA.

Windfall Elimination Provision (WEP)

You will be subject to the WEP if you earned a pension in any job not covered by Social Security and you also have enough Social Security credits for covered quarters due to other employment and are therefore eligible for Social Security retirement benefits.

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