Social Security Benefits Handbook Online Edition

Social Security Benefits Handbook online edition

What You Want To Know - What You Need To Know

Chapter Seven Benefit Amounts

§ 701    Benefit Amounts in General
§ 702.1 The Primary Insurance Amount
§ 702.2 The Basic Computation Formula
§ 702.3 Other Computation Formulas
§ 702.4 The Effect of Having Years With No Earnings
§ 702.5 How to Double-Check Your Benefit Amount
§ 703.1 Reductions for Age - Benefits Before Full Retirement Age
§ 703.2 Reduction for Age - Retirement Benefits
§ 703.3 Reduction for Age - Spouse’s Benefits
§ 703.4 Reduction for Age – Widow(er)’s Benefits
§ 703.5 How Taking Reduced Retirement Benefit Will  Affect Other Benefits
§ 703.6 How Taking Reduced Widows Benefits Will  Affect Your Own Benefit
§ 703.7 The Family Maximum
§ 704.1 Recomputations in General
§ 704.2 Cost of Living Increases
§ 704.3 Adjustment for Earnings After Entitlement
§ 704.4 Refiguring the Age Reduction at Full Retirement Age
§ 704.5 Refiguring the Age Reduction for Widow(er)s at Age 65
§ 704.6 Delayed Retirement Credits
§ 704.7 How to Expedite Adjustments for Earnings After Entitlement
§ 705.1 Deductions in General
§ 705.2 Deductions Because of Earnings
§ 705.3 Deductions from Disability Benefits for Workers’  Compensation or
             Disability Payments
§ 705.4 Deductions from Spouse’s and Widow’s Benefits
             Due to a Government Pension
§ 705.5 Deductions to Recover an Overpayment
§ 705.6 Deductions for Medicare Premiums
§ 705.7 Rounding Down

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Note: To get a quick benefit estimate from the Social Security Administration, Click Here

Section 701 - Benefit Amounts in General

      For obvious reasons, the way that the Social Security Administration computes the amount of benefits payable is very important to everyone. In this chapter we will discuss the rules which are used to figure benefits. We will discuss the basic computation, recomputation due to earnings after you first become entitled to benefits, reductions for age and for entitlement to other benefits, and the credits given for delayed retirement.

      Deductions because of earnings are discussed in detail in Chapter 8. The method and timing of payments are discussed in Chapter 10.

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Section 702.1 -   The Primary Insurance Amount

       The first step in figuring benefits is to determine the primary insurance amount (PIA). All benefits are based on it. The benefit amount for a retired worker at Full Retirement Age and for a disabled worker is equal to the primary insurance amount. It is reduced for retirement benefits before Full Retirement Age and increased for delayed retirement.

      Benefits for spouses, children and survivors are figured as a percentage of the primary insurance amount. The PIA is the single most important concept for computing benefit amounts.

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Section 702.2 -   The Basic Computation Formula

      The primary insurance amount (PIA) is based on the earnings of the worker on whose account the benefits are claimed. It is used to calculate benefit amounts. Sample benefit amounts for workers with maximum lifetime earnings are listed in Appendix 4.

      There is one basic formula used to compute almost all PIAs. Some special formulas, used rarely, are discussed in Section 702.3. The basic formula is described in this section, but is extremely complicated and is almost always done by SSA's computers rather than manually.

      The 1978 amendments to the Social Security Act mandated "indexing" of earnings to adjust earnings of earlier years for inflation occurring now. The first step of the basic computation formula is to index the workers annual earnings for past years. Each year's earnings are separately indexed. To do this, SSA first determines the "indexing year."

    For retirement cases, this is the second year before the year the worker becomes age 62 (not necessarily the year of retirement). For disability cases it is the second year before the onset of disability and for survivor cases it is two years before the year of death.

    For example, for a worker who becomes age 62, disabled, or dies in 2009, the indexing year is 2007.

      SSA then determines the "average annual earnings" of all workers for the indexing year and for each past year after 1950. They divide the "average earnings of all workers" for the indexing year by the "average earnings of all workers" for each prior year. They multiply the answer for each year by the amount of the worker's earnings for that prior year (but not more than the FICA maximum for that year). The result is the worker's indexed earnings for each prior year. This process is done for all years after 1950 up to, but not including, the indexing year. SSA uses actual earnings, not indexed earnings, for the indexing year and later years.

    Tha Average Indexed Wages For All Workers used by SSA are stated below
source-socialsecurity.gov/OACT/COLA/AWI.html#Series

1951-2006

Year	Index
1951	2,799.16
1952	2,973.32
1953	3,139.44
1954	3,155.64
1955	3,301.44
1956	3,532.36
1957	3,641.72
1958	3,673.80
1959	3,855.80
1960	4,007.12
1961	4,086.76
1962	4,291.40
1963	4,396.64
1964	4,576.32
1965	4,658.72
1966	4,938.36
1967	5,213.44
1968	5,571.76
1969	5,893.76
1970	6,186.24

Year	Index
1971	6,497.08
1972	7,133.80
1973	7,580.16
1974	8,030.76
1975	8,630.92
1976	9,226.48
1977	9,779.44
1978	10,556.03
1979	11,479.46
1980	12,513.46
1981	13,773.10
1982	14,531.34
1983	15,239.24
1984	16,135.07
1985	16,822.51
1986	17,321.82
1987	18,426.51
1988	19,334.04
1989	20,099.55
1990	21,027.98

Year	Index
1991	21,811.60
1992	22,935.42
1993	23,132.67
1994	23,753.53
1995	24,705.66
1996	25,913.90
1997	27,426.00
1998	28,861.44
1999	30,469.84
2000	32,154.82
2001	32,921.92
2002	33,252.09
2003	34,064.95
2004	35,648.55
2005	36,952.94
2006	38,651.41

      After the earnings for all years have been indexed (except the indexing and later years), SSA then determines how many years to use for the computation.

    For people born in 1930 or later, add 22 to the year of birth. Subtract that figure from the year of attainment of age 62, onset of disability, or death. For people born before 1930, subtract 1951 from the year of attainment of age 62, onset of disability, or death - whichever is earliest.

    For retirement and survivor benefits subtract 5. The result is the number of years used, called "computation years."

      For disability benefits, if the onset of disability is age 26 or younger, do not subtract anything; ages 27 through 31, subtract 1; ages 32 through 36, subtract 2; ages 37 through 41, subtract 3; ages 42 through 46, subtract 4; age 47 or older subtract 5.

    The minimum number of computation years used is 2. The maximum number of computation years is 35.

      After determining the number of computation years, SSA looks at the annual indexed earnings calculated for the worker as described above from 1951 through the year before the year for which the benefit is calculated. You may include the year of death in survivor cases. Take the computation years with the highest indexed earnings, and add up the total indexed earnings for those computation years.

      When recomputing a retirement benefit to include earnings after entitlement, the number of computation years is the same. If the earnings for the new year are higher than the indexed earnings of the lowest year used in the first computation, substitute the new years earnings. When you add the new years earnings into the total, you must subtract the lowest years indexed earnings.

      Once SSA has determined the total indexed earnings for the computation years, they divide by the number of months in the computation years. These are called "Divisor months." The number of computation years times 12 equals the divisor months used.

      The total of the indexed earnings for the computation years is used, divided by the divisor months, rounded to the next lower dollar, yields the "average indexed monthly earnings."

     The primary insurance amount is a certain percentage of the average indexed monthly earnings. This varies depending on the average indexed monthly earnings and on the year for which the computation is being done.

    For 2008, the figures are as follows: 90 percent of the first $711; plus 32 percent of the amount over $711 and through $4,288; plus 15 percent of the amount over $4,288. Then round down to the next lower multiple of $.10 if it is not already a multiple of $.10. The percentages (90%, 32%, 15%) stay the same for each year, but the bend points change annually.

     Note that worker's who receive pensions for government service that was not covered by Social Security are subject to a Windfall Elimination Provision (WEP). Under this rule, the first percentage number (90%) is replaced by 40%. There are several exemptions from the WEP. You may find them in SSA's Programs Operations Manual System (POMS) at  RS 00605.362 WEP Exceptions.

    The dollar amounts at which the percentages change are called "bend points."   They are determined by dividing the indexing years average total wages of all workers, by the average total for 1977 ($9,779.44), and multiplying the result by $180.00 and $1,085.00 to give you the two bend points.

      The bend points used depend on the first year of eligibility (i.e. the year the worker becomes 62, disabled or dies), and remain applicable for later recomputations, even though the recomputation is done in a later year.

      Cost-of-Living Adjustments (Section 704.2) are added to the primary insurance amount beginning with the year of eligibility, effective with the month of increase.

      Once the primary insurance amount is calculated, the benefit amount payable is determined according to the rules in this chapter, and by referring to the benefit amounts listed for each type of benefit in Chapter 2.

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Section 702.3 -   Other Computation Formulas

      The basic computation formula discussed in the preceding section applies to almost all beneficiaries. Other computations are used in a very small number of cases which we will discuss briefly.

      The 1977 amendments to the Social Security Act changed the basic computation formula to the "average indexed monthly earnings" method discussed in Section 702.2. The general effect of this change was to take inflation into account, but also to reduce the amount of benefits.

      For workers who attained age 62 before 1984, Social Security may use a different formula. This other formula is called the "new-start transitional guarantee." When using this formula, however, Social Security does not add in earnings from the year you attained age 62 or later. This formula does not use indexed earnings; instead it uses the actual earnings. The transitional guarantee formula may result in a higher primary insurance amount in some cases where the last years earnings were in 1980 or 1981.

       If you had been entitled to Disability Insurance Benefits more than a year before your entitlement to Retirement Benefits, the year of your death in survivor cases or a second period of disability, you will receive the higher of a primary insurance amount figured under the basic computation formula or the primary insurance amount upon which your disability benefit was based. In other words, you will not have a lower primary insurance amount than you had while you were disabled.

      The Social Security Administration also uses other formulas where there are little or no earnings after 1951. We will not discuss the details of these other formulas, but you should be aware that they may be used. As noted above, only a very small number of people will have a higher benefit under these other computation formulas. Social Security will automatically consider all computation formulas and give you the highest one.



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Section 702.4 -   The Effect of Having Years With
                  No Earnings

      As noted in Section 702.2 above, the years used in figuring the primary insurance amount are the years from 1951 or the year you turn 22, if later, through the year before the year you turn age 62. The lowest five years are dropped from that base period. If you have five or less years with no earnings shown on your earnings record, it will have no effect on your computation. However, if you have more than five years with no earnings, then it will, because the overall average monthly earnings during the computation will be less.

      Generally, if the year with no earnings is a later year, it will have more of an effect than an earlier year. This is because the amount of earnings covered by Social Security have increased over the years, so that recent years earnings subject to FICA (see Appendix 3) are very high, although "indexing" (see Section 702.1) has somewhat reduced the disparities.

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Section 702.5 -   How to Double-Check Your
                  Benefit Amount

      In the vast majority of cases, Social Security correctly computes your benefit amount, but sometimes mistakes occur. The most common mistake is the failure to include earnings for a given year. If earnings are not shown on your earnings record, it may affect the amount of your average monthly earnings and therefore the amount of your benefit.

      If you doubt the accuracy of your benefit amount, the first thing to do is go to your Social Security office and ask them to obtain a copy of your earnings record used in the computation of the benefit. It may take them several weeks or a month to obtain this. You should check to make sure that the correct earnings are posted for each year. If there is a year which does not have earnings shown, determine if it makes a difference in the computation of your benefit. If it is one of the five lowest years in the computation period as discussed in Section 702.1 above, then it does not matter.

      The general rule is that you can correct your earnings record only for the past three years. However, there are exceptions to this rule (Section 1405). If you have a year with no earnings shown which is more than three years in the past, you can ask Social Security to re-check their records in Baltimore. This is called a "scout." If earnings turn up on the "scout" your benefit will be re-adjusted. If they do not turn up Social Security may still allow you to correct your earnings record if you have evidence of the earnings, such as W-2 form, pay stubs or a tax return.

      If all your earnings are shown on your earnings record and you still doubt the accuracy of the benefit, you should ask a Claims Representative (Section 105) to show you how your benefit was computed step by step.

      If you are not satisfied you have the right to request a reconsideration. This is part of the administration appeals process (see Chapter 13).

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Section 703.1 -   Reductions for Age - Benefits
                  Before Full Retirement Age
                  In General

      In the case of retirement, aged wife's/husband's, aged widow(er)'s and disabled widow(er)'s benefits, your benefit amount will be reduced if you take the benefit before Full Retirement Age. This is age 65 for those born before 1938; 1940 for widow(er)'s. The reduction is figured on a monthly basis, not yearly. Beginning in 2003 (but affecting those turning 62 in 2000), Full Retirement Age is gradually increasing, in two-month increments per year, to age 66 by 2009. There will then be an eleven-year pause. The increases will then resume, going to age 67 by 2027. This change affects those persons turning age 62 beginning in 2000. The effect of the change is that the benefit at age 62 is reduced more than previously ( by 5/12 of 1 percent for each extra month).

The following chart contains the full retirement age for workers and spouses born after 1937 (for widows see section below):

birth date/ full retirement age

1/2/38-1/1/39


65 years and 2 months

1/2/39-1/1/40


65 years and 4 months

1/2/40-1/1/41


65 years and 6 months

1/2/41-1/1/42


65 years and 8 months

1/2/42-1/1/43


65 years and 10 months

1/2/43-1/1/55


66 years

1/2/55-1/1/56


66 years and 2 months

1/2/56-1/1/57


66 years and 4 months

1/2/57-1/1/58


66 years and 6 months

1/2/58-1/1/59


66 years and 8 months

1/2/59-1/1/60


66 years and 10 months

1/2/60 and later


67 years

      There are different reduction formulas for retirement, wife's/husband's, and widow(er)'s benefits. These are discussed in a detail in the following sections.

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Section 703.2 - Reduction for Age - Retirement Benefits

      If you are entitled to a retirement benefit before the month you reach Full Retirement Age, the benefit must be reduced. The reduction factor goes by months, not by years, so that if your first month of entitlement is the month before Full Retirement Age, the benefit is reduced by 1 month. If the first month of entitlement is 6 months before Full Retirement Age it will be reduced 6 months and so forth all the way back to age 62 (but see Section 209 dealing with the "throughout the month" rule).

      The legal reduction factor is 5/9 of 1% of the primary insurance amount for each month of the first 36 months you are entitled to a benefit before the month you reach Full Retirement Age. The factor for each month of reduction in excess of 36 months is 5/12 of 1 percent. This applies to individuals whose full retirement age is after age 65. A 36-month reduction comes out to 20%, but remember that the reduction factor goes by month, not by year.

    For example, if you were born in September 1934, you turned 65 in September 1999. If your entitlement to benefits started in January 1998 your primary insurance amount is reduced by 20 reduction months because that is the number of months before the month you turn 65. If your primary insurance amount is $500.00, 1% of it is $5.00. 5/9 of 1% is $2.77. Multiply this amount by the number of reduction months. 20 times $2.77 is $55.40. The monthly benefit amount is $500.00 minus $55.40, which is $444.60. Please note that if your Full Retirement age is over 65 (see chart above), extra reductions are applied for each month in excess of 36. The actual amount payable to you is rounded down to the nearest dollar ($444.00). See Section 705.7.

      A formula is used by Social Security to figure the monthly benefit amount instead of the above method. The formula is 180 minus the number of reduction months, times the primary insurance amount, divided by 180 or [(180-RM)xPIA)]/180. Applying the facts in the example used above we take 180 and subtract 20, the number of reduction months. This leaves 160. Multiply 160 times the primary insurance amount of $500.00 which is 80,000. Divide by 180 and the answer is $444.44. This is rounded down to the nearest dollar for a final benefit amount of $444.00.

      A third method of figuring the reduced benefit is to use the reduction factor listed in the chart at Appendix 5. The factor for 20 reduction months is .888. Using the above example, .888 multiply times 500 (the primary insurance amount) to arrive at a monthly benefit amount of $444.00.

      You may note that there are some minor discrepancies in the results obtained by using the above formulas. The first formula is from the Social Security Act, the second is the one Social Security uses, and the third is published in Social Security pamphlets.

      Please note that any reduction for age stays in effect until you reach Full Retirement Age. At that time the reduction factor is readjusted to exclude any reduction for months before Full Retirement Age for which you do not receive a full monthly benefit (Section 704.4). If you receive all monthly benefits, the reduction stays in effect for life.

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Section 703.3 - Reduction for Age - Spouse's
                Benefits

      Benefits payable to a spouse of a retired or disabled worker are reduced if entitlement to the spouses benefit begins before the month the spouse reaches Full Retirement Age. See the preceding section for the new rules for those turning age 62 in 2000. Extra reduction months are applied for months in excess of 36. The reduction factor for these excess months for spouses benefits is the same as for retirement benefits, i.e. 5/12 of 1 percent. Please note that if the wife is entitled because she has a child in her care (Section 213) there is no reduction for age. The spouses benefit is reduced only for the spouse who is entitled because of her age. If the spouse has worked under Social Security and is entitled to a retirement benefit on her own account see Section 302.

      The reduction formula applicable to spouses benefits is 25/36 of 1% of 1/2 of the workers primary insurance amount for each of the first 36 months of entitlement to the spouses benefit before Full Retirement Age, and 5/12 of 1% for months in excess of 36. The reduction factor goes by months, not by years, so that the difference between taking a reduced benefit when you are 62 and 11 months and taking it when you are exactly 63 is 1 additional month of the reduction factor.

      Example: Wanda is 63. She never worked under Social Security. Her husband is entitled to a benefit with a primary insurance amount of $600.00. Wanda becomes entitled to the spouses benefits when she is 15 months under age 65. To figure her benefit amount we take 1/2 of her husbands primary insurance amount ($600.00 divided by 2 equals $300.00); 1% of $300.00 is $3.00; and 25/36 of $3.00 is $2.08. Multiply this amount times 15 reduction months for a figure of $31.20. This is subtracted from $300.00 to result in a monthly benefit amount of $268.80, rounded down to the nearest dollar of $268.00 (Section 705.7).

      Now lets assume that Wanda worked under Social Security and has a primary insurance amount of $200.00. Her benefit would be figured as follows. First we take her own primary insurance amount and reduce it by 15 reduction months using the formula described in Section 708 above. The $200.00 is reduced because of her age to $183.30, rounded down to $183.00. We then determine her spouses benefit and reduce it. The spouses benefit is $100.00 (the difference between 1/2 of her husbands primary insurance amount and her own primary insurance amount). It is reduced 15 months using the formula described in this section. The $100.00 is reduced to $89.50, rounded down to $89.00. Her monthly benefit amount is composed of her own reduced benefit in the amount of $183.00 plus the reduced spouses benefit in the amount of $89.00 for a total benefit payable of $272.00.

      Instead of using the formula described above, another formula is used by Social Security. The formula is 144 minus the number of reduction months, times 1/2 of the workers primary insurance amount, divided by 144, rounded down to the nearest dollar, or [(144-RM)x1/2 PIA]/144. Use the difference between 1/2 of the spouses PIA and your own PIA if you are eligible on your own account.

      Another method of figuring the spouses benefit is to use a reduction factor from the chart in Appendix 5. Multiply 1/2 of the workers primary insurance amount times the reduction factor corresponding to the number of reduction months. For example, the factor for 15 reduction months is .895. To figure Wanda's spouses benefit from the above example (assuming she was not entitled to a benefit on her own account) take 300 (1/2 of her husbands primary insurance amount) times .895 to arrive at the reduced wife's benefit amount of $268.50, rounded down to $268.00.

      Please note that the reduction stays in effect for all months before age 65, but then is readjusted to exclude a reduction for any month before age 65 for which no full monthly benefit is paid (Section 704.4). If all benefits before 65 are paid, the reduction stays in effect for life.

      The maximum amount of the reduction for age based on 36 reduction months is 25%.

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Section 703.4 - Reduction for Age Widow's
                Benefits

      Widows and widowers who are entitled to benefits because of age will have their benefit amounts reduced for any month before Full Retirement Age for which they are entitled to a benefit. A disabled widow(er) under 60 receives the same benefit amount as a widow(er) at age 60. For benefits payable before January, 1984,
widows(er)s who were entitled to disabled
widow(er)'s benefits before age 60 have an additional reduction of 43/240 of 1% for each month of entitlement before age 60. Beginning with those born in 1940 and later, additional reduction months are applied because the Full Retirement Age has been increased above age 65. See the discussion of this at the beginning of this Section. The applicable Full Retirement Age for widows(er) depends on the year of birth according to the following chart:

birth date/full retirement age

1/2/40-1/1/41


65 years and 2 months

1/2/41-1/1/42


65 years and 4 months

1/2/42-1/1/43


65 years and 6 months

1/2/43-1/1/44


65 years and 8 months

1/2/44-1/1/45


65 years and 10 months

1/2/45-1/1/57


66 years

1/2/57-1/1/58


66 years and 2 months

1/2/58-1/1/59


66 years and 4 months

1/2/59-1/1/60


66 years and 6 months

1/2/60-1/1/61


66 years and 8 months

1/2/61-1/1/62


66 years and 10 months

1/2/62 and later


67 years

      The formula specified in the Social Security Act for widow(er)'s benefits is a reduction of 19/40 of 1% of the primary insurance amount for each month before age Full Retirement Age at the time entitlement begins. This works out to a 28 1/2% reduction at age 60 for those born before 1940.

     Reduction months will increase by an additional two months for those born in 1940 and later. However, because the maximum reduction for age can never exceed 28½%, the extra monthly reduction is spread out over the period of entitlement before full retirement age. Therefore, the reduction factor for each reduction month will vary according to the applicable full retirement age of the individual. This will depend on the year of birth.

     The reduction factor is based on the number of months before Full Retirement Age, not the number of years. For instance, if you take a reduced widows benefit exactly at age 62, the benefit will be reduced by 36 reduction months if you were born before 1940. If you were born in 1943, an additional 6 months would apply, for a total of 42 reduction months. Because the maximum reduction cannot exceed 28, a different fraction is required depending on the year of attainment of Full Retirement Age (FRA). The benefit is reduced by a fraction of the PIA for each reduction month according to the chart in Appendix 5, Chart 3.

      Regardless of the amount arrived at by using a reduction formula, the widow(er)'s benefit can never be greater than the amount of the monthly benefit which the husband/wife received during lifetime if he or she was entitled. For example, if the husband took a fully reduced benefit at exactly age 62, his primary insurance amount was reduced. The widow cannot receive more than he received even if she first becomes entitled when she is at Full Retirement Age. Likewise, any additional credit for delayed retirement (Section 704.6) is added to the benefit of the widow. For example, if the husband had a primary insurance amount of $500.00 which was increased by 3% due to delayed retirement, the widows benefit would be figured using $515.00, the increased amount.

      At Full Retirement Age the reduction factor is readjusted to exclude any reduction for a month before Full Retirement Age for which no full monthly benefit was actually paid (see Section704.4). Note that a widow(er) also receives a readjustment of the reduction factor at age 62 if benefits were taken before then (see Section 704.5).

      If a widow(er) is entitled to a benefit based on her/his own account at age 62 she/he has an option to take either the reduced widow(er)s benefit or the reduced retirement benefit on her/his own account and then switch over to the other benefit unreduced at Full Retirement Age or earlier (see Section 303).

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Section 703.5 - How Taking Reduced Retirement Benefit Will Affect Other      Benefits

      If you take a retirement benefit reduced for age, it may have an effect on other benefits payable to you or to others. The most common example of this is the case of widow's benefits. If you take your own reduced retirement benefit and then die, the amount your widow(er) may receive cannot exceed the amount you were receiving in your lifetime, although she/he is over full retirement at the time she/he first becomes entitled. She/he will however receive any cost of living adjustments which may occur after your death.

      If at the time you apply for reduced retirement benefits you are also potentially eligible for spouses benefits on a husbands or wife's account, you must apply for the reduced spouses benefit as well, even if there are no benefits actually payable because of the husbands or wife's earnings. This provision only applies if at the time you make your application for reduced retirement benefits, your spouse is entitled to retirement or disability benefits. For example, your spouse turned 65 last year and is entitled to retirement benefits and Medicare. However, due to his earnings no benefits are payable. You are 62 years old now and you apply for your own reduced retirement benefit. Social Security will require you to file an application for the reduced spouses benefit if one half of the spouses primary insurance amount is greater than your own primary insurance amount, regardless of whether cash benefits are payable to you as a spouse (your spouse's earnings will have no effect on the payment of your own benefits).

    If your spouse retires in 2 years, the additional spouses benefit will be paid at the reduction rate in effect at the time you first applied for your own retirement benefits and not based on your age at the time the benefits are first payable, until you reach full retirement age when the reduction will be adjusted (Section 704.4). See also Section 414.

      If you are potentially eligible for widow(er)'s benefits at the time you file for reduced retirement benefits you do not necessarily have to apply for them. You have the option of taking one or the other benefit reduced and then switching over to the other one unreduced at full retirement age. See Section 303.

      If you apply for reduced retirement benefits and you have a spouse who may be entitled on your account, the fact that your benefit is reduced for age has no bearing on determining the amount of the spouses benefit. The spouses benefit will be reduced according to her age at the time of the first entitlement. Your primary insurance amount will be reduced for the number of months you are under full retirement age at the time of first entitlement; for the spouse, one-half of your primary insurance amount will be reduced by the number of months she/he is under full retirement age at the time she/he becomes entitled. See Section 703.1.

      If you become entitled to disability insurance benefits, the amount of your disability benefit will be reduced by the number of months you receive a retirement benefit before receiving a disability benefit. For example, lets say that you become disabled at age 63. No benefits are payable for the first 5 full months of the waiting period of your disability (Section 507). Because you are over age 62 you may receive reduced retirement benefits during the waiting period. The amount of that benefit is reduced for your age at the time you first become eligible for the retirement benefit.

    If you are exactly age 63 at that time, the primary insurance amount is reduced by 24 months using the reduction formula described in Section 703.1 above. When you become entitled to the disability benefit after your waiting period, the benefit amount will be readjusted to exclude reduction for any months for which you have not received a retirement benefit. Your disability benefit is reduced, but only by the number of retirement benefits you received before becoming eligible for the disability benefits.



      Other benefits payable to dependents on your account will not be affected by the fact that you take reduced retirement benefits.

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Section 703.6 - How Taking Reduced Widow(er)'s Benefits Will Affect Your Own Benefit

      If you take a widow(er)'s benefit before full retirement age it will not affect benefits on your own account if you were born after 1928. You may switch over at full retirement age to your own unreduced benefit, if that would yield a higher amount. This is discussed in full in Section 303.

      However, if you were not born after 1928 and take a reduced widow(er)'s benefit before age 62, it may have a permanent effect on your own retirement benefits. The dollar amount of that reduction will be deducted from your own primary insurance amount at age 65. If you take your own benefit before 65, only one reduction will be imposed, either the regular retirement reduction (Section 703.1), or the dollar amount of the widows reduction caused by receipt of widows benefits for any month before age 62, whichever is higher. See also Section 704.5.

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Section 703.7 -   The Family Maximum

      If there are dependents entitled to benefits on your account there is a maximum amount payable to your family unit regardless of what the full payment amounts to the dependents would be individually. This is referred to as the "family maximum." For example, in a case of a retired worker who has 3 children under age 18 entitled on his account, each childs benefit without taking the family maximum into account would be 50% of his primary insurance amount. However, depending on the amount of his primary insurance amount, there is a maximum which can be paid to the family regardless of the number of beneficiaries. Once this maximum is reached it does not matter how many additional dependents are entitled on the account because the total amount payable on the earnings record cannot exceed the family maximum. Each dependents benefit is reduced proportionately so that the total for everyone does not exceed the family maximum. The workers own benefit is never adjusted for this purpose.

      The amount of the family maximum depends on the type of benefit you receive and the year in which you become 62, become disabled, or die, i.e., the "year of eligibility." The family maximums are the same for retirement cases and for survivor cases. There is a different family maximum applicable to disability cases.


     In the case of retirement and survivor accounts, the family maximum goes on a sliding scale. The scale varies depending on the year of eligibility. "Bend points" are used in the same way that a primary insurance amount is derived from average indexed monthly earnings (see Section 702.2).

      The family maximum is 150% of the primary insurance amount (PIA) up to the first bend point; plus 272% of the excess of the PIA over the first bend point up to the second bend point; plus 134% of the excess of the PIA over the second point up to the third bend point; plus 175% of the PIA in excess of the third bend point.

      The percentages (150%, 272%, 134%, 175%) remain the same from year to year, but the bend points will change in the same way as the bend points used to compute the primary insurance amount (Section 702.2).

      In disability cases, the family maximum is 85% of the average indexed monthly earnings (Section 702.2), but not more than 150% of the primary insurance amount, nor less than 100% of the primary insurance amount.

      Once the amount of the family maximum is determined, the dependents benefits are reduced proportionately so that the total family benefits do not exceed the maximum. In the case of retirement and disability benefits, the workers primary insurance amount (not the benefit amount after age reduction) is deducted from the family maximum, and the balance divided among the dependents, in a proportion according to their original benefit amounts before any age reduction, as is the case with survivor benefits.

      The adjustment for the family maximum is made after any deductions (See Section 705 of this chapter). If a dependent is not receiving benefits because of work deductions, the adjustment is made as if that dependent were not entitled on the account.

      Where a person is entitled as a child on more than one account, the family maximums of both accounts are combined.

      A divorced spouses or a divorced widow(er)'s benefit is not reduced for the family maximum. Other dependents benefits on the account are not reduced due to a divorced spouses or widows entitlement on that account.

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Section 704.1 -   Recomputations in General

      At the time you first apply for Social Security benefits, a primary insurance amount is computed (Section 702.2) and a benefit amount determined.

      This may be adjusted later under certain circumstances. Adjustments to the primary insurance amount or monthly benefit will affect benefits payable beginning with the effective date of the adjustment. There are four basic types of re-computations: cost of living increases, adjustments to include earnings after you first become entitled to a benefit, reduction factor adjustment at age 62 and full retirement age, and the delayed retirement credit which increases your benefit if you did not receive monthly benefits after full retirement age. These are discussed in detail in the following sections.

Section 704.2 -   Cost of Living Increase

      Each year all Social Security benefits are increased according to the cost of living increase which occurred during the preceding year. This is based on inflation as reflected in the Consumer Price Index. The cost of living increase is effective beginning with the month of December. Please note that monthly benefits are paid in arrears (Section 1003) so that the benefit increase effective with December is reflected in the monthly benefit check received in January of the following year.

      The cost of living increases are shown in Appendix 6. The latest increases are found on the Latest Updates page. The increase is computed as a percentage of the monthly benefit amount, not the primary insurance amount.

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Section 704.3 -   Adjustment for Earnings After Entitlement

      As noted in Section 702.2 the primary insurance amount is based on your earnings ending with the year before the year you first become eligible, (survivor cases include the year of death). For example, if you apply for benefits in 2006, your earnings through 2005 will be included in the computation. However, if you work in the year you first become entitled to benefits or later and the earnings in the later year are greater than the lowest years earnings in the computation of your benefit, then your primary insurance amount will be increased. If the amount of your earnings in the later year is less than the lowest years earnings there will be no increase in your benefit. See Section 702.2.

      The increase is effective with January of the year after the year of the additional earnings. If you continue working, and your annual earnings are greater than the lowest year used in the computation of your benefit, the increased benefit amount will be payable beginning with January of the following year.

      This adjustment increases your primary insurance amount and accordingly will increase the benefit for anyone who is receiving benefits on your account.

      Social Security will automatically readjust your benefit amount to include additional earnings if it yields a higher benefit. However, they are very backlogged in doing this. In fact, they run years behind. You may request an earlier readjustment.

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Section 704.4 -   Refiguring the Age Reduction at Full Retirement Age

      If you received a benefit reduced for age (Section 703.1), the reduction factor will be adjusted effective with the month you reach Full Retirement Age. This adjustment will eliminate the reduction for any month before Full Retirement Age for which you did not receive a full monthly benefit. If you received all benefits, there is no adjustment. If you received a partial benefit for a month, the reduction attributable to that months entitlement will be eliminated because you did not receive a full monthly benefit.

      This reduction factor adjustment applies to all benefits which were reduced for age and is effective beginning with the month you reach Full Retirement Age. It cannot be figured until after the year of Full Retirement Age because the amount of your earnings may affect whether or not any benefits will be withheld for that year.

      Example: John filed for reduced retirement benefits to be effective 15 months under Full Retirement Age. Accordingly, his primary insurance amount was reduced by 15 months. After he became entitled to reduced retirement benefits, he had earnings which prevented the payment of benefits for 6 full months and for part of a 7th month. When he reaches Full Retirement Age, the primary insurance amount will be reduced permanently by only 8 months. The month he received partial payment is also eliminated. His benefit amount will increase accordingly. No adjustment will be made until after he files an annual report (Section 902.3) for the year he reaches Full Retirement Age. When the recalculation is done, it will be retroactive to the month he reaches Full Retirement Age.

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Section 704.5 -   Refiguring Age Reduction for Widow(er)'s at Age 62

      In addition to the reduction factor adjustment as described in Section 704.4, widow(er)'s who received reduced benefits before 62 are entitled to a readjustment of their benefit amount at 62 to eliminate a reduction factor for any month before 62 for which they did not receive a full monthly benefit. The increased monthly benefit will be payable beginning with the month you turn 62.

      Example: Sally applies for widow's benefits at exactly age 60 and the widow's benefit is therefore reduced by 60 reduction months. She returns to work and has earnings which require 5 monthly benefits to be withheld and part of a 6th month before 62. The reduction factor based on 60 reduction months will be used to figure benefits payable up through the month before she becomes 62. However, beginning with the month she attains age 62, the reduction factor will be adjusted to eliminate the 6 months for which she did not receive a full monthly benefit before 62. If she works again between 62 and 65, the benefit amount will be adjusted again at 65 as described in Section 704.4.

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Section 704.6 -   Delayed Retirement Credits

     If you do not receive your monthly benefits after Full Retirement Age, you will receive a credit for each month beginning with the month you reach Full Retirement Age, but not past age 70. The credit varies, depending on your year of birth, from 1/4 of 1% to 2/3 of 1% for each month beginning with the month of attainment of Full Retirement Age for which you did not receive any monthly benefit. This comes out to between 3% and 8% per year. The chart at Appendix 10 lists the percentages according to year of birth. The credit is payable beginning with January of the year following the year in which you did not receive the benefits. In addition to the delayed retirement credit, you may also be eligible for an adjustment because of your earnings after your first year of entitlement (see §704.3).

     You may receive a credit for any month for which benefits were not paid because an application was not filed, or you voluntarily suspended benefits to earn credits.

     The delayed retirement credit will not affect the benefits of any dependents on your account, but if you die and leave a widow(er), the widow(er) will be entitled to the delayed retirement credit.

     You are eligible for the credit whether or not you file at full retirement age. It will be computed when you start to receive benefits. No credit is granted for any period you are not fully insured (§602).

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Section 704.7 -   How to Expedite Adjustments for Earnings After Entitlement

      As discussed in Section 704.3, the amount of your benefit may be increased if you have earnings after the first year you become eligible for benefits provided that those earnings are higher than the lowest year of earnings used in the computation of your benefit amount.

      The increase due to earnings is payable beginning with January of the year following the year of the earnings.

     Social Security will re-compute this adjustment automatically. However, it will take many months and probably years to do it. This is because there is a lag from the time you earn the wages until the time Social Security receives the report of your earnings and then acts on it to increase your benefit. You can expedite this process by making a special request. To do this, you will need your W-2 form (or tax return for the year if you were self-employed). You must go or write to your local District Office and show them your tax return or W-2. Ask that the earnings be refigured immediately instead of waiting for the automatic readjustment. Social Security will act upon your request and refigure your benefits although it may take several months. Whether you ask Social Security to do it immediately or you wait until they do it automatically, the adjustment will be retroactive to the first month after the year for which you had the earnings.

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Section 705.1 -   Deductions in General

      After your monthly benefit amount is calculated using the rules discussed in this chapter, Social Security may, under certain circumstances, withhold part or all of the monthly benefit. The major reasons for these deductions are discussed in the following sections. Please also note that the family maximum discussed in Section 703.7 may also cause a reduction of the amount of the benefit payable to a dependent or survivor. The deductions we discuss here apply to the actual benefit amount figured after taking into account any reductions for age or adding any credits for later earnings or delayed retirement. Additionally you may elect to have income tax deductions made from your benefits, see Section 1409.

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Section 705.2 -   Deductions Because of Earnings

      If your earnings in a year during which you are entitled to monthly benefits are over the limits applicable to that year, then some or all monthly benefits must be withheld. The retirement test or the work test, as it is sometimes called, is discussed in full in Chapter 8. Once the amount of benefits to be withheld is determined by using the annual earnings test, full monthly benefits for that year will be withheld beginning with the first month during which you are entitled, unless you request pro-rating (see Section803).

    For example, if based on your annual earnings and applying the work test, it is determined that $5,000.00 of monthly benefits must be withheld and your monthly benefit amount is $600.00, then your monthly benefit will be withheld until the $5,000.00 is reached. If you are eligible beginning with January to a monthly benefit of $600.00, then benefits for the months of January through September will be withheld in full. This would be $4,500.00 worth of benefits. An additional $500.00 must be withheld to satisfy the $5,000.00, therefore the benefit for the month of October will have the $500.00 deducted and only $100.00 will be payable to you.

      If you first became entitled to benefits beginning with the month of June instead of the month of January, no monthly benefits would be payable to you at all for the year because 7 x $600.00 is only $4,200.00, which is less than the amount which must be withheld based on your annual earnings.

      If you have dependents entitled on your account, the dependents benefits will also be withheld if your earnings require (see Section 803). However, the earnings of a dependent will affect only that dependents benefits and will not affect the benefits of anyone else who receives payments on the account.

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Section 705.3 -   Deductions from Disability
                  Benefits for Worker's
                  Compensation or Disability
                  Payments

      If you are entitled to a disability benefit and are also entitled to Workers Compensation or certain other types of disability payments (see Sections 511-512), the combination of the Social Security benefit and Workers Compensation benefit (or other disability payment which is subject to the offset provision) cannot exceed 80% of your average earnings. The way average earnings are figured for these purposes is discussed in Section 511.

      The offset will also apply to any dependents who receive benefits on your account, offsetting their benefits before yours. For example, your average earnings were $1,000.00 per month; you are entitled to a $500.00 Social Security disability benefit; you have a child who is entitled to $250.00 on your account. You are also eligible for $350.00 per month in Workers Compensation benefits. Eighty percent of your average earnings is $800.00, but the total of the Social Security benefits and the Workers Compensation benefits is $1,100.00. Therefore, the $300.00 difference must be withheld. First the childs benefit will be withheld, then $50.00 of your own benefit, so that the total of the Social Security benefits and Workers Compensation benefits does not exceed 80% of the average earnings.

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Section 705.4 -   Deductions from Spouse's and Widow(er)'s Benefits Due to a Government Pension


    If you receive Social Security benefits as a wife, husband, widow or widower, the amount of your benefit is reduced by 2/3 of a government pension you receive based on your own earnings if the public employment in which you worked was not covered by Social Security. This is called the Government Pension Offset (GPO).

    There is an exemption from this offset if your last 60 months of government service were covered by social security.

    A transitional rule is in effect for those whose last date of service is before March 2, 2009 and after June 30, 2004. You may reduce the 60 months required by each month of SS covered service before March 2, 2004. The reduction cannot be less than one month.   The service must be all in the same retirement system. The advantage is that the months do not have to be consecutive. Any remaining months needed to fulfill the 60 months requirement must be worked after March 2, 2004.

       The offset applies only to spouse's or widow(er)'s benefits and does not apply to benefits on your own earnings record.

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Section 705.5 -   Deductions to Recover an
                  Overpayment

      Overpayments are discussed in detail in Chapter 11. If it is determined that you have been overpaid, you may have to pay the overpayment back (see Chapter 11 for exceptions). If you are receiving Social Security benefits, benefits will be withheld to recover the overpayment.

      This is discussed in Section 1114. Note that in the first instance, Social Security will advise you that they will withhold your full monthly benefit until the entire amount of the overpayment has been recovered. However, you may request that less than the full monthly benefit be withheld. Generally, this request will be granted if the overpayment can be recovered within 3 years. For instance, you were overpaid $1,000.00 and are entitled to a monthly benefit in the amount of $500.00.

    Social Security will seek to recover the overpayment by withholding 2 months benefits. However, you may request that only part of your monthly benefit be withheld to recover the overpayment and Social Security generally will allow you 36 months. Instead of having the $1,000.00 deducted from two full months benefits, the sum of approximately $30.00 per month may be deducted from your monthly benefits to recover the $1,000.00. Social Security does not charge any interest on this installment method of paying back the overpayment (for a more complete discussion of overpayments, see Chapter 11).

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Section 705.6 -   Deductions for Medicare
                  Premiums

      The medical insurance part of Medicare (Part B) requires the payment of a monthly premium. The monthly premium may be higher if you did not apply for Medicare coverage timely (see Section 1203).

      If you are covered by medical insurance under Medicare the premium will be deducted from your monthly benefits, if you are receiving them. Otherwise, you will be billed on a quarterly basis. When your benefits begin the premium will be deducted from the monthly benefit. If you have already paid a quarterly bill, you will receive a refund at a later date.

Section 705.7 -   Rounding Down

      After Social Security computes your benefit (and makes any required deduction) the resulting monthly benefit amount will be reduced to the lowest multiple of $1.00. Rounding down is done after all the other factors used in computing benefits have been applied, including the Medicare deduction.

      The only time that rounding down is not the last step is in the case of combined benefits (Section 1004). In that case, each benefit amount is figured separately and rounded down separately. The rounded down amounts are then combined.

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