Glossary Finance

Social Security

Social Security is the US government retirement, disability and survivor benefit program, funded by payroll taxes.

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In more detail

The monthly retirement benefit starts from your primary insurance amount (PIA), worked out from your 35 highest-earning years, adjusted for wage growth. The PIA is what you get at full retirement age, which is 67 for people born in 1960 or later. Claiming from 62 reduces the benefit permanently, to 70% of the PIA when the full retirement age is 67; delaying past full retirement age adds 8% a year up to age 70, reaching 124%. Benefits rise each year with a cost-of-living adjustment. Employees and employers each pay 6.2% of wages, up to a yearly cap, to fund it.

Why it matters

The claiming age is one of the largest retirement decisions: the difference between claiming at 62 and 70 is more than 75% of monthly income, for life, and it also affects survivor benefits for a spouse.

Example

With a PIA of $2,000 and a full retirement age of 67:

Claiming age Monthly benefit
62 $1,400
67 $2,000
70 $2,480

Ignoring cost-of-living increases and investment returns, the total received by claiming at 70 overtakes claiming at 62 at about age 80 and a half.

Common confusion

Social Security is a public scheme with its own formula; a workplace pension is paid by an employer's plan.

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