Full Retirement Age in the USA: Definition, Social Security Benefits, & More

Retirement plans are a contribution that affects current, long-term careers as well as future lives. The full age for retirement in the US is when individuals can earn full retirement benefits upon leaving the workforce, also known as the “normal retirement age.” It’s also sometimes called FRA for short (for “full retirement age”). Social Security benefits are payments provided to them and to their families, children, and survivors of eligible retirees and disabled persons. 

What Age Do I Receive Full Retirement Benefits?

In the United States, for those born in 1960 or later, the maximum retirement age for obtaining social security payments is 67 years, 66 for those born between 1943 and 1954, and 66 and two, four, six, eight, or two, four, six, eight, or ten months for those born from 1955 to 1959.

That’s a lot of numbers. Basically, just know that with each consecutive year, the age increases by two months. 

Claiming benefits before the full retirement age will decrease your payout, whereas claiming after your FRA will increase them by 8% annually for the highest benefit at age 70. See the full chart below for your age to receive full social security benefits by year:

Full Retirement Age in the USA: Definition, Social Security Benefits, & More
Full Retirement Age in the USA: Definition, Social Security Benefits, & More

What are Social Security Benefits?

According to the Social Security Administration, Social Security measures the average indexed monthly earnings (AIME). Social Security, technically the Old-Age, Survivors, and Disability Insurance offering in the United States, is a robust public welfare program intended to provide seniors and their families, anyone whose spouse or qualified ex-spouse has died, and the disabled with partial replacement income. It also benefits the children of beneficiaries under defined circumstances. 

To apply for benefits, a person must pay into the Social Security program over their working years to accrue 40 credits. How do you earn social security credits? According to Investopedia, here’s how social security credits work: 

“Typically, the number of credits required in order to be eligible for retirement benefits is 40. Because you can’t earn more than four credits per year, it takes a minimum of 10 years in the workforce to accrue the credits necessary to apply for benefits. The SSA assigns “credits” to your paid taxes. For 2021, you earn one credit for every $1,470 in earnings. It is possible to earn all four annual credits in a short amount of time. Once you have earned $5,880 in taxable income, you have acquired the maximum number of credits for the year.”

The level of benefits someone gets is dependent on their history of earnings, the year they were born, and the age that they started claiming Social Security. Depending on your salary and tax reporting status, there can also be tax incentives along the way.

What Is Old Age, Survivor, and Disability Insurance?

This robust public program benefits retirees and disabled persons and their families, children, and survivors. The program’s objective is to partially replace income lost due to old age, a spouse’s death, an eligible ex-spouse, or disability.

According to the Social Security Administration (SSA), the U.S. Social Security program is the most extensive such system globally. It is also the most considerable federal government expense, estimated to cost $1.2 trillion in 2021. Nearly nine out of 10 individuals aged 65 and older enjoy social security benefits. 

The policy was implemented by the Social Security Act, signed on August 14, 1935, by President Franklin D. Roosevelt, when the United States economy was in the middle of the Great Depression. FDR’s program, along with the U.S. population and economy, has expanded massively over the decades. 

What Is the Old Age and Survivors Insurance Trust Fund? 

The Insurance Investment Fund of Old-Age and Survivors is a U.S. Treasury account used to deposit tax receipts paid to former employees, their living families, and qualifying children for Social Security payments. The Social Security Administration administers the fund, which holds the right to transfer benefits to deserving parties from the OASI Trust Fund. 

The Old-Age and Survivors Insurance Trust Fund, established on January 1, 1940, resulted from changes to the Social Security Act of 1939. How big is it now, you might wonder? Very big. In fact, the reserve balance in the OASI Trust Fund was $2.78 trillion at the end of 2018.

The OASI Trust Fund assets are deposited in the Treasury in a different account. When it comes to providing monthly benefits, the fund has automatic spending authority; that is, the fund does not need to make special demands to Congress for benefits to be paid. An important mechanism for helping residents has been the OASI Trust Fund, with substantial funding being either Medicare or Social Security.

What Is the Trust Fund of Disability Insurance?

The Disability Insurance Trust Fund is the smaller of two accounts within the Social Security Trust Fund, created as part of the 1956 Amendments to the Social Security Act. The second fund is the Old-Age and Survivors Insurance Trust Fund. 

Those that are physically or mentally incapable of gainful jobs are paid Social Security payments by the Disability Fund. Partners and children of beneficiaries can also obtain the rewards.

The Disability Insurance Trust fund collects a percentage of payroll taxes from employee and employer contributions in FICA and SECA. FICA is a deduction from employee paychecks that matches corporate payments to finance the Social Security Trust Fund. SECA contributions come from self-employed company owners who pay all employee and contractor sums into the plan depending on their net profits. 

As it uses excess proceeds to buy interest-bearing government securities that it keeps in the Trust, the Disability Insurance Trust Fund (DI) can actually finance itself. Plus, these same taxes help to fund the Trust Fund of Old-Age and Survivors trust fund.

Many observers see social security benefits as the basis of retirement income, especially since benefits are a stable and reliable resource for almost all elderly households. Social Security benefits, employer-provided pensions, and income from assets or savings are the traditional primary sources of retirement income in the United States, often referred to as the three-legged stool, or the three pillars.

Full Retirement Age Takeaway (FRA in the USA!)

The primary key point is that the Full Retirement Age (or FRA) in the United States varies based on birth year. That said, if you’re born after 1960, then it’s much easier: your FRA is 67, plain and simple. (Unless the government changes things again!) Keep in mind, as well, that social security is only one way to prepare for retirement. Read our article on personal finance apps and investing in the S&P 500 to help set you up for a financially fulfilling retirement.

United States Retirement Fact Sheet Infographic AMoneyGenius.com
United States Retirement Fact Sheet Infographic AMoneyGenius.com

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