Social Security: Delay or Take the Money and Run—Act II
A dilemma facing workers who have reached their full retirement ageis whether to take the Social Security benefit and continue working or wait to take advantage of an increased regular benefit and a significant delayed retirement credit.
I addressed this question in the August 2000 issue of the AAII Journal [“Social Security Benefits at 65: Delay, or Take the Money & Run?”], but with a “new” group of AAII members approaching elective retirement, this is a topic worth reviewing.
In this article
- Determination of the Social Security Benefit
- Factors for the Decision Process
- Full Retirement Age: Delay or Take the Money and Run
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Determination of the Social Security Benefit
The Social Security benefit is based on indexed wages from the year of age 22 through the year of age 59 plus actual wages for the year of age 60 through the year prior to the elected retirement year (e.g., 2010 for those electing to take benefits in 2011). In order to determine indexed wages, an index factor for each year is calculated by dividing the national average wage indexfor the age-60 year by the NAWI for each year from the year of age 22 through the year of age 59. Indexing stops with the age-60 year. Then, the actual Social Security taxable wage earned each year, up to the limit for Social Security payroll ( taxes, is multiplied by the corresponding index factor. The largest 35 of these indexed wages are totaled, and that sum is divided by 420 (12 months per year times 35 years) to obtain an average indexed monthly earnings amount.
The earliest that Social Security benefits may be taken electively is at age 62. A formula is applied to the AIME such that more of the wages are included in the benefit for low wage earners than are included for high wage earners. The 1977 Amendments to the Social Security Act established bend points that are used to determine a person’s primary insurance amountfrom the AIME.
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