Factors in Calculating Your Monthly Benefit
The U.S. Congress and the Social Security Administration (SSA) define your FRA based on your birth year. Your FRA will impact the rest of your retirement planning process because the SSA calculates the amount of your monthly retirement benefit using just two figures:
Your lifetime earnings historyThe age at which you begin collecting your retirement benefit as compared to your FRA
The SSA adjusts your actual earnings to account for changes in wages since you earned that money, based on the 35 years during which you earned the most money. It then applies a formula to determine the basic benefit you would receive at your FRA.
FRA According to Birth Year
If you were born in 1937 or earlier, from 1943 to 1954, or in 1960 or later, determining your FRA is simple. If you’re in the first group, your FRA is 65. If you’re in the second group, your FRA is 66. And if you’re in the third group, your FRA is 67. For other yearly spans, the FRA is slightly modified. If you were born from 1938 to 1942, your FRA is 65 and some months. And if you were born from 1955 to 1959, your FRA is 66 and some months. There may be reasons that retiring early is the smart choice. For instance, you might have another retirement savings account to make up for the lower monthly benefit check; you may be able to afford to retire without the SSA benefit altogether.
What Is the Effect of Early Retirement?
As mentioned, people who retire early face a smaller monthly benefit payment, and the amount is very clearly defined in the law. If you choose to retire before your FRA, your monthly benefit will be reduced by as much as 30%. The choice will affect your spouse as well. If your spouse chooses to retire before their FRA, the monthly benefit they could collect from your Social Security will be reduced by as much as 35% from the usual 50% amount a spouse would receive at FRA. The chart below shows payment details for someone retiring at age 62.
