Retirement Social Security Benefits
On August 14, 1935 President Roosevelt signed into law the Social Security Act. The Act created a new social insurance program that was designed to help pay retired workers an income after retirement once they were age 65 or older. It was not until late in 1936 that workers would be required to become registered with a Social Security number in an effort to help track work records and credits toward these new benefits.
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Retirement Age
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An individual's set retirement age is based on the year they were born. You can start earning benefits (retire) between the age of 62 and your set retirement age; however, your benefits are partially reduced for each month you are retired before your full retirement age.
Individuals with the lowest retirement age of 65 are those born in the year 1937 or before. The retirement age varies between birth years, leading up to the retirement age of 67 for individuals born in 1960 or later.
Calculation
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Retirement benefits are based on your average earnings over most of your lifetime. First, the Social Security Administration adjusts your earnings to account for changes in the average wages. They then calculate your average monthly earnings for the 35 years in which you have earned the most money.
They then apply a complex formula to those earnings to get your benefit amount, or primary insurance amount (PIA). This number is the amount you will receive at full retirement age.
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Credits
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When you are employed, and pay Social Security taxes, you will earn credits toward future Social Security benefits. For workers born in 1929 or later, you will need 40 credits to be eligible for Social Security Retirement benefits at your full retirement age. Retirement benefits cannot be paid until you have the minimum of 40 work credits. Forty work credits is the equivalent of 10 years of work.
Working and Receiving Benefits
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Even after you begin to receive your Social Security Retirement benefits, you can still work. Earnings during or after the month you become eligible for full retirement benefits do not reduce the amount of your benefits. However, benefits can be reduced if your earnings exceed certain limits in the months before reaching full retirement age.
Income Limitations
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For workers born between January 2, 1943 and January 1, 1955 the full retirement age is 66. Working after full retirement age allows you to keep all of your earnings without an income limitation. However, if you are younger than 66 you can only receive full retirement benefits if you earn under $14,160 in a year. $1 will be deducted from your benefits for each $2 you earn over the annual limit.
In the year you reach full retirement age, $1 will be deducted for every $3 you earn above $37,680. This is only applicable up until the month in which you reach full retirement age.
Considerations
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Income limits, and even retirement ages, change over time. Since the beginning of the Social Security Act, the retirement age has been changed just as the amount of income you can earn and still receive benefits has.
Retiring before your full retirement age will decrease your benefits permanently, but this is done so that you receive the same amount of money over time. If you retire late, you may be eligible to receive higher monthly benefits because you will generally receive benefits over a shorter period of time.
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