724. Basic Reduction Formulas
724.1 What are the basic reduction formulas?
There are four basic reduction formulas:
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A retirement insurance benefit is reduced by 5/9 of one percent (or 0.0056) for each month of entitlement before FRA;
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Wife's and husband's insurance benefits are reduced by 25/36 of one percent (or 0.0069) for each month of entitlement before FRA;
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Widow(er)'s insurance benefits are reduced for each month of entitlement between ages 60 and FRA. The amount of the reduction for each month is derived from dividing 28.5 percent by the number of possible months of early retirement. A person whose FRA is age 65 could be entitled up to 60 months before FRA. Each month is therefore 28.5 percent divided by 60 (or 0.00475). A person whose FRA is age 66 could be entitled up to 72 months before FRA. Each month is therefore 28.5 percent divided by 72 (or 0.00396). Widow(er)'s insurance benefits payable before age 60 based on disability are not further reduced for months before age 60; and
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Retirement insurance benefits and spouse's benefits are reduced by 5/12 of one percent (or 0.0042) for each month of reduction in excess of 36 months. This applies to individuals whose full retirement age is after age 65. (See §723.)
724.2 How does the reduction formula affect retirement insurance benefits?
If you receive payment for every month, you will usually be ahead in total retirement insurance benefits received for the first 15 years beginning with your month of entitlement to the reduced benefit. If you receive payments for more than 15 years, the total retirement insurance benefits you receive will usually be less than if you had waited until FRA for an unreduced retirement insurance benefit.
724.3 How does the reduction formula affect widow(er)'s insurance benefits?
If you receive a reduced widow(er)'s insurance benefit beginning between ages 60 and FRA, you will generally be ahead as to cumulative benefits you receive during approximately the 17 1/2 years after the month of entitlement. You will be behind after that. If you have already decided to take your own benefits at age 62 (perhaps monthly payment rates are much higher), you will generally be ahead in total benefits for longer than 17 1/2 years-often much longer-by taking reduced widow(er)'s insurance benefits at age 60.
724.4 How does the reduction formula affect wife's or husband's insurance benefits?
If you receive only reduced wife's or husband's insurance benefits for every month, you will usually be ahead for 12 years. However, if you outlive the worker, your widow(er)'s insurance benefit will be computed based on your age at the time of the worker's death. There is no reduction for the prior entitlement as a wife or husband. For the reduction of a disability benefit, see §726.
Last Revised: March, 2001