WSJ: What You Should Know about Social Security

Full Retirement Age

Full retirement age, as defined by the Social Security Administration, is the age “at which a person may first become entitled to full or unreduced retirement benefits.” That age used to be 65 but is gradually climbing to age 67 (depending on your year of birth). Example: A person entitled to a monthly benefit of $1,000 at a full retirement age of 66 would receive only $750 if he or she began collecting benefits at age 62 (the earliest age at which most people can file for benefits).

Note: As with most of the Social Security program, the idea of “full retirement age” is complicated. It’s also somewhat misleading. Your largest benefit is actually available at age 70, thanks to something called “delayed retirement credits.” For each year a person waits beyond full retirement age to first collect benefits—up to age 70—his or her monthly payout will increase 8%.

An excellent discussion about all of these concepts can be found at the Center for Retirement Research at Boston College. In the search box, enter: real retirement age is 70.

Avoiding Zeros

Several readers wanted to know what might happen to their Social Security benefits if they stopped working at, say, age 60 or 62 and waited to file for benefits until their full retirement age.

This raises an important, and often overlooked, point. Your annual Social Security statement (which is available at the Social Security website and which the agency is again mailing to many workers), estimates what your benefit will be at your full retirement age, given “your current earnings rate [and] if you continue working.”

Translation: If you stop working before full retirement age, your benefit could be smaller than you anticipate.

That’s because your Social Security benefit is tied to your 35 years of highest earnings (with early-year figures adjusted for the average increase in wages over time). Typically, your earnings in your 50s and 60s are at their peak and will displace lower inflation-adjusted earnings (from, say, your 20s) when the Social Security Administration calculates your benefit.

But if you stop working at, say, age 60, you could be stuck with some of those low-earning years in your benefit calculation. Or, if you don’t have 35 years of earnings, Social Security will use a zero for each year without earnings.

If you’re considering retiring early, the Social Security website features a good calculator that enables you to enter specific earnings figures (or the lack thereof) in the years leading up to retirement. It should give you a good estimate of your eventual benefit.

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