Social Security and Medicare

Chapter 3Social Security Retirement Benefits

Learning objectives

• Recall the relationship between years of FICA earnings and average indexed monthly earnings (AIME).
• Recognize the importance of a fully insured worker’s full or normal retirement age in determining benefits.
• Identify the manner in which AIME and the PIA determine retirement benefits.
• Determine how claiming benefits while younger than normal retirement age will result in a reduction of benefits.
• Recall how first claiming benefits when older than normal retirement age results in an increase in benefits.
• Identify auxiliary retirement benefits for spouses, divorced spouses, and children of fully insured workers.

Overview

A Federal Insurance Contributions Act (FICA)-covered worker’s retirement benefit is based on his or her average earnings over a working career. Higher lifetime earnings result in higher benefits. As a result,, if a worker had some years of no earnings or low earnings, his or her benefit amount may be lower than had that individual worked continuously. The age at which the individual begins to receive benefits also affects the benefit amount. Although one may begin claiming Social Security retirement benefits as early as age 62, the longer one waits to claim benefits (up to age 70), the higher that retirement benefit will be.

A FICA worker’s normal retirement year, or full retirement year, is the one in which his or her primary insurance amount (PIA) is paid in full. The normal retirement age (NRA) ...