It's a common misconception that full Social Security retirement age -- the age at which you can collect your full retirement benefit -- is 65 years old. It makes sense, as this is the age of Medicare eligibility as well as the retirement age for many pension plans, but it is incorrect. In fact, depending on when you were born, full retirement age can be as high as 67, and it can have a major impact on your benefits. With that in mind, here's a guide to finding out your full Social Security retirement age, what it means for your Social Security benefits, and whether it could change in the future.
When can you start collecting Social Security?
To be perfectly clear, your full Social Security retirement age (also known as your "normal" retirement age) isn't when you will become eligible for Social Security benefits.
Americans who qualify for a Social Security retirement benefit based on their (or a spouse's) work record can choose to start collecting their benefit at any point between the ages of 62 and 70, regardless of when their full retirement age is. In other words, if your full retirement age is 66, and your friend's full retirement age is 67, you can both choose to claim Social Security as early as age 62 if you want to, or you can both choose to wait until as late as age 70. Technically, you can wait as long as you want, but there's no monetary advantage to waiting past age 70, as we'll discuss later.
Why your Social Security full retirement age matters
You might be wondering: "But if I can collect Social Security as early as age 62, why does my full retirement age matter?"
In a nutshell, your full retirement age is used to determine your primary insurance amount, or PIA. This can be thought of as your "base" Social Security benefit -- the amount you can expect to receive each month if you claim Social Security at your exact full retirement age. It may surprise you to learn that relatively few Americans do this -- in fact, the majority of Americans claim Social Security well before reaching their full retirement age.
If you choose to start collecting Social Security at any age other than your full retirement age, your benefit will be permanently adjusted up or down to compensate. After all, if you claim Social Security at age 62, you'll receive benefits for more years than if you had claimed benefits at, say, 67, so it makes sense that you'd receive less each month. And if you claim at 70, you'll receive fewer years of benefits than if you had claimed at a younger age, so it makes sense that you'd be entitled to a higher monthly benefit payment.
Social Security benefits are designed so that the average beneficiary receives the same amount of money (inflation-adjusted) throughout their lifetime, regardless of when they decide to start taking benefits. Because of recent increases in life expectancy, the formula is somewhat skewed in favor of people who wait, but it's still pretty close.
How to determine your Social Security retirement age
There's no one Social Security full retirement age that applies to everyone. It depends on your year of birth. If you were born between 1943 and 1954, your full retirement age is 66. If you were born in 1960 or later, it's 67. And if you were born between 1954 and 1960, it's somewhere in between.
If you were born in...
Your full Social Security retirement age is...
66 years, 2 months
66 years, 4 months
66 years, 6 months
66 years, 8 months
66 years, 10 months
1960 or later
Why has the full retirement age increased?
In the early 1980s, Social Security wasn't exactly in the best financial shape. Simply put, there was too much money flowing out of the program in the form of benefits and not enough flowing in through payroll taxes.
Congress decided to fix the problem by passing the Social Security Amendments of 1983, which extended the program's solvency by a few decades. One of the amendments called for gradually increasing the full retirement age from 65 to 67 by 2027, in two phases. The first gradually raised the full retirement age from 65 for Americans born in 1937 or earlier to 66 for those born in 1943 to 1954. The second phase is affecting people currently reaching the Social Security eligibility age of 62, and it gradually raises the full retirement age to 67, as detailed in the table above.
How your benefit is calculated
Here's a quick overview of the formula the Social Security Administration (SSA) uses to calculate your primary insurance amount, or PIA. Remember, this is your monthly Social Security benefit if you choose to claim at your full retirement age -- no sooner or later.
Note: This calculation method is rather long and complicated to do yourself. If you're just looking for a good estimate of how much you can expect, you can get one by reading your most recent annual Social Security statement. You can find it at www.ssa.gov -- you'll need to create a "my Social Security" account if you haven't done so already. Not only does your Social Security statement contain an estimate of your primary insurance amount based on your actual earnings record, but it also contains valuable information about Medicare eligibility, disability benefits you could receive if you become unable to work before reaching full retirement age, benefits your survivors could get if you were to die prematurely, and more.
First, your entire earnings history is taken into account. Each year's earnings, up to the Social Security taxable maximum for each year, is indexed for inflation. For example, 1998's taxable maximum was $68,400, and the inflation index factor is 1.69. So, if you earned less than $68,400 in 1998, your earnings would be multiplied by this factor. If you earned more than that, $68,400 would be multiplied by this factor. This is done for every single year you had Social Security-taxable earnings.
Next, the 35 highest inflation-indexed years' earnings are added together. If you have fewer than 35 years of earnings history, zeros are used for the missing years. This sum is then divided by 35 and then divided by 12 to calculate your average indexed monthly earnings, or AIME.
Your AIME is then used with the applicable Social Security benefit formula to determine your PIA. For 2018, the formula is:
- 90% of the first $895 in AIME
- 32% of the amount over $895 but less than or equal to $5,397
- 15% of the amount over $5,397
It's important to note that when calculating your PIA, the formula used is the one that was in effect in the year you first became eligible for Social Security -- meaning the year you turned 62. So, you would only use the above formula if you turn(ed) 62 in 2018. However, the percentages don't change from year to year, only the AIME thresholds (also known as "bend points").
For 2019, the bend points in the Social Security formula are increasing as follows:
- 90% of the first $926 in AIME
- 32% of the amount over $926 but less than or equal to $5,583
- 15% of the amount over $5,583
So, if you turn 62 during 2019, you'll use this formula to calculate your PIA.
If you turned 62 before 2018, you can find your bend points on the SSA's website. For example, if you turned 62 in 2015, you'll use the amounts $826 and $4,980 in place of $895 and $5,397, respectively, in the formula listed above, regardless of what year you actually claim Social Security. You will, however, be entitled to any cost-of-living adjustments (COLA) that are given between when you first become eligible for benefits and when you actually claim your benefits.
If you will turn 62 after 2019, it's tough to accurately estimate your PIA -- there's no telling what the bend points will be in the year you become eligible.
Once your PIA has been calculated, it is used as a base benefit level and is adjusted according to the age at which you actually decide to start receiving benefits.
Should you take Social Security early?
If you claim your Social Security benefit before you reach full retirement age, your benefit will be permanently reduced from your calculated PIA. The SSA uses two rules to determine the exact amount of your benefit reduction, depending on how long before your full retirement age you decide to take benefits.
For every year before full retirement age you decide to take benefits, up to three years, your benefit will be permanently reduced by 6.67%. This is determined on a monthly basis, so for every month you claim before full retirement age, this works out to a reduction of approximately 0.56%.
If you claim Social Security more than three years prior to attaining full retirement age, your benefit will be further reduced by 5% per year, or about 0.42% per month.
Let's say your full Social Security retirement age is 66 years and four months, and that you've calculated your PIA to be $1,500 per month (ignoring any cost-of-living adjustments). If you decide to claim Social Security at 62, that would be four years and four months before reaching your full retirement age. So, your benefit would be reduced as follows:
- 6.67% per year for the first three years prior to full retirement age, for a total of 20%.
- 5% for the fourth year.
- 0.42% per month for the additional four months, for a total of 1.67%.
Adding these percentages together shows that if you choose to claim Social Security at age 62, your PIA of $1,500 would be reduced by 26.67%, which would translate to a monthly retirement benefit of $1,100.
Should you wait to claim Social Security benefits?
On the other hand, if you choose to delay starting Social Security until after you've attained full retirement age, your Social Security benefit will be permanently increased from your calculated PIA.
For every year after full retirement age you decide to take benefits, up to age 70, your benefit will be increased by 8% per year, or about 0.67% per month.
So, if your full retirement age is 66 years and four months, and you wait until age 70, this would get you three years and eight months of delayed retirement credit. Your benefit would be increased as follows:
- 8% per year for the three full years, for a total of 24%.
- Approximately 0.67% for the additional eight months, for a total of 5.33%.
This adds up to an increase of 29.33%. If your calculated PIA is $1,500, this means your benefit would grow to $1,940 if you wait until age 70 to claim, plus any cost-of-living adjustments that are given in the meantime.
What if you plan on working after you claim Social Security?
If you plan to work, even part-time, after you claim your Social Security retirement benefit, your full retirement age is especially important to know.
If you haven't yet reached your full retirement age, the amount of money you can collect from Social Security while working is limited. The guidelines governing this limit are known as the Social Security earnings test, and there are two rules that might apply to you.
If you will reach full retirement age after 2018 and have already claimed Social Security, $1 of your calculated benefits will be withheld for every $2 you earn in excess of $17,040 annually, or $1,420 per month. (For 2019, this threshold is increased to $17,640, or $1,470 per month.) For example, if you're 62 and earn $2,000 per month from a job, this is $580 over the earnings test limit. Your Social Security benefit will be reduced by one-half of this amount, or $290 per month. So, if you would ordinarily receive $1,100 per month, this would reduce your monthly Social Security benefit to $810.
If you will reach full retirement age during 2018, the annual earnings limit is $45,360. This translates to $3,780 per month, and only the months before the month you'll reach full retirement age are considered. Under this earnings test rule, your benefit is reduced by $1 for every $3 you earn in excess of the threshold. For 2019, this threshold is increased to $46,920 annually, or $3,910 per month.
For example, if you're turning 66 in April 2019 and earn a salary of $60,000 per year ($5,000 per month), your monthly earnings exceed the 2019 earnings test limit by $1,090, which would reduce your monthly Social Security benefit by $363.33. However, this would only be implemented for January, February, and March 2019, since you'll reach full retirement age in April.
Here's the key point to note: There is no such thing as the Social Security earnings test once you reach your full retirement age. At that point, you're allowed to collect your entire Social Security benefit no matter how much you earn from working.
It's also important to note that any benefit reduction due to the earnings test isn't lost money. Once you reach full retirement age, any withheld benefits will be applied to your future benefits, serving to permanently increase them.
Could your Social Security retirement age change?
The Social Security program isn't in great financial shape, but it has plenty of money for now. At the end of 2017, Social Security had about $2.9 trillion in reserves, and it ran a surplus for the year. So, don't let anyone tell you that Social Security is "broke." It isn't.
However, annual deficits are expected to begin this year and continue for the foreseeable future. They are expected to start out modest but get larger quickly. In fact, if nothing is done, the program's reserves are expected to be completely depleted by 2034. The issues facing Social Security are complex, but the short version is that the massive baby-boomer generation is gradually starting to retire, and life expectancies in America have increased since the current benefit and tax structure was implemented. As a result, there will be more and more people drawing benefits from Social Security, and not enough workers funding the program through payroll taxes. Historically, there have been about 3.2 to 3.4 workers contributing to Social Security for each retiree drawing benefits. According to SSA projections, though, this ratio is expected to fall to just 2.2 workers per beneficiary by 2035.
Something will need to be done in the not-too-distant future in order to increase Social Security's long-term solvency, or the program could run out of money in about 16 years.
To be clear, even if Social Security does run out of money, benefits won't simply go away. The payroll taxes flowing into Social Security should be enough to cover more than three-fourths of benefits, so as a worst-case scenario, Social Security running out of money would mean an across-the-board 23% benefit reduction.
History tells us -- given the Social Security Amendments of 1983 -- that something will be done to remedy the problem. And just like in 1983, it's entirely possible that part of whatever reform package is ultimately passed will include a phased-in increase in the full retirement age. So, if you're still a long way from reaching retirement, your full Social Security retirement age is currently 67, but it could certainly change before you can claim your retirement benefit.
The Motley Fool has a disclosure policy.