If I stop working at age 63 but delay taking SS benefits until age 67, how is the benefit increase calculated for that four year period?

Hi,

I'm assuming that you were born in 1960 or later, making your full retirement age (FRA) 67. If you stop working at age 63, your full retirement age rate, or primary insurance amount (PIA), won't increase or decrease after that except for cost of living increases (COLA). A person's PIA is calculated based on an average of their highest 35 years of Social Security covered wage-indexed earnings. So, if you stop working at age 63, your PIA would be based on your highest 35 years of wage indexed earnings up to the time of your retirement.

If you were to stop working and start drawing your Social Security retirement benefits prior to FRA your benefit rate would be reduced for age. That percentage reduction is applied to your PIA and amounts to 5/9ths of 1% for up to the first 36 months of reduction, and 5/12ths of 1% for each reduction month in excess of 36 months. So, for example, if your PIA (i.e. full retirement age rate) was $1000 and your full retirement age is 67, if you started drawing benefits effective with the month you reach age 63, your reduced monthly rate would be $750. The 25% reduction in that case would be calculated as follows: 36 months x 5/9th of 1%, or 20%; plus 12 months x 5/12ths of 1%, or 5%.

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Best, Jerry