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Comments made by Ben_Templin

Social Security - Is It Time For Reform?

You are right -- people who work in this area often throw out the word "retire" when we really should be using the term "claiming benefits."

During the program, we were talking about the trend for people to stop working at 62 and start claiming benefits – i.e. retire. The decision of whether to start claiming benefits really depends on a number of factors including life expectancy, other means of support, etc. Most people, however, would be better off if they stayed in the workforce and delayed claiming benefits until after their full retirement age.

That said, let me try to address the other issues you brought up. The whole system is fairly complex, so I will first define a few terms which are used by the Social Security Administration.

--"Early Eligibility Age" is the age at which you can first claim benefits -- i.e. 62 years old. If you claim at this age, you get reduced benefits. Someone who has a Full Retirement Age is 66 and starts claiming early at 62 will have a reduction of 25% in benefits. If you keep working then there is a further reduction using what is called the Retirement Earnings Test (RET). I don’t have room here to discuss it in detail, so instead I suggest you read the article, which is linked on this webpage. It discusses the pros and cons of the RET in more detail.

--"Full Retirement Age" (FRA) is the age at which you get full benefits. (In the past, this has been called the Normal Retirement Age.) A person's FRA differs according to when he was born. Someone born in 1949 has a Full Retirement Age of 66. If that person claims benefits at 66, he get what is sometimes called "full benefits." For our purposes, "full benefits" matches up with the term "Full Retirement Age" to convey the idea that it's the amount you get if you retire at your FRA.

What you are talking about is referred to as "Enhanced Benefits." If you do not claim benefits at your FRA or earlier, then the "Delayed Retirement Credit" will enhance the benefits of someone born in 1943 or later by 8% per year until age 70. The Delayed Retirement Credit stops at 70. However, if you keep working you will have an increase in benefits. By continuing to pay into the system, you may be adjusting what is called the Average Indexed Monthly Earnings (AIME), which is the basis for your benefit calculation. This is a fairly technical so if you want to read more about it, I suggest you go to this link:
As you can see, the calculation and factors that go into a benefits determination are fairly complex. The decision of when to retire (or start claiming benefits and still work) also very much depends on the facts and circumstances of the individual.

Hope that helps.

Best regards,

Ben Templin

August 4, 2011 at 2:45 p.m. ( | suggest removal )