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Social Security: The Back Box of Retirement

Be honest, how much do you know about social security? For the majority of our readers, you probably have little idea how social security works other then the fact that you receive money from the government. The details around when and how much you get paid could take up a couple classes of a personal finance course. However, over the next two week we’ll break down the basics.

Question 1

Question 2

Question 3

Question 4

We’ll have the answers after the break

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Answers

Question 1

Answer: C

The earliest age at which a person can begin receiving Social Security retirement benefits is 62.

Question 2

Answer: D

The latest age at which a person can begin receiving Social Security retirement benefits is 70.

Question 3

Answer: B

Social Security retirement benefits are based on your highest 35 years of earnings. If you don't have 35 years of earnings when you apply for benefits, your benefit amount will be lower. 

Here's how Social Security benefits are calculated:

• Adjust earnings: Your earnings are adjusted to reflect changes in general wage levels since the year you earned them. This is called "indexing".

• Calculate average indexed monthly earnings (AIME): The AIME is the average of your highest 35 years of indexed earnings.

• Apply a formula: A formula is applied to the AIME to calculate your primary insurance amount (PIA). The PIA is the basis for your Social Security benefits. 

You can increase your Social Security benefits by working more. Each year you work replaces a zero or low earnings year in your benefit calculation. You can also delay your benefits until after full retirement age to be eligible for delayed retirement credits, which increase your benefit.

Question 4

Answer: A

We decided to give you an easy one to round out today’s test. When a beneficiary elects to take Social Security payments at an older age, they receive more money due to the way the Social Security system is designed to encourage delayed retirement. This is because:

1. Full Retirement Age (FRA): The Social Security Administration (SSA) sets a Full Retirement Age, which is typically between 66 and 67, depending on birth year. If a person claims benefits before this age (as early as 62), their monthly payments are reduced to account for the longer period over which they will receive benefits.

2. Delayed Retirement Credits: For each year a beneficiary delays taking Social Security beyond their FRA (up until age 70), they earn "delayed retirement credits." These credits increase their monthly benefit by about 8% per year. This is designed to compensate for the shorter period they will receive benefits due to the delayed start.

3. Longevity Adjustments: The Social Security system aims to balance payments across an individual's expected lifetime. Those who start collecting benefits later are statistically expected to live fewer years receiving payments, so their monthly amount is higher to compensate for the shorter duration of payments.

In essence, delaying Social Security payments results in a higher monthly benefit because the system is structured to reward patience and account for life expectancy.

In other news

The S&P 500 reached an all-time high Wednesday. With Atlanta’s GDP Now forecast is reading above 3% and a strong jobs print from September, the nation’s economy appears to be roaring.

The west coast of Florida was hit by Hurricane Milton starting Wednesday night. We have yet to ascertain the damage of the storm, but a difficult recovery effort is expected in the weeks and months ahead.