Malti Patel

Q: How are my retirement benefits calculated? Are my retirement benefits figured on my last five years of earnings?

A: Social Security benefits are based on earnings averaged over most of a worker's lifetime. Your actual earnings are first adjusted or "indexed" to account for changes in average wages since the year the earnings were received. Then they calculate your average monthly indexed earnings during the 35 years in which you earned the most. Apply a formula to these earnings and arrive at your basic benefit or "primary insurance amount" (PIA). This is the amount you would receive at your full retirement age, for most people, age 65. However, beginning with people born in 1938 or later, that age will gradually increase until it reaches 67 for people born after 1959.

As you can see from the above, the benefit computation is complex and there are no simple tables that can present that will tell you how much you will receive. However, there are several ways you can determine an estimate of your retirement benefits. Request a Social Security statement. Make your request over the Internet and a detailed report of your lifetime earnings and an estimate of retirement, disability and dependent benefits will be mailed to you.

Q: What is your full retirement age?

A:

Year of birth             Full retirement age
1937 or earlier                       65
1938                       65 and 2 months
1939                       65 and 4 months
1940                      65 and 6 months
1941                      65 and 8 months
1942                      65 and 10 months
1943--1954                       66
1955                       66 and 2 months
1956                       66 and 4 months
1957                       66 and 6 months
1958                       66 and 8 months
1959                       66 and 10 months
1960 and later                      67

Q: I am full retirement age (FRA) and still working. Do I have to report my earnings to Social Security?

A: When you reach FRA, you no longer need to report your earnings to Social Security. You do, however, need to report earnings for those months in the calendar year before the month you reach FRA. For example, if you reach FRA in May, you would need to report your earnings for the four earlier months. The law also changed the annual earnings limit for workers who reach FRA during the year. During those months before you reach FRA, your benefits would be reduced $1 for each $3 you earned over the limit, which is $33,240 in 2006 and $34,440 in 2007.

These questions and answers are courtesy of Malti Patel, 1607 Wood Creek Lane, Allen, Texas 75002. She can be reached at (469) 675-0972.