The Social Security Administration (SSA) uses the term “Normal Retirement Age” (NRA) to mean the age which you would receive your “Primary Insurance Amount.” And the SSA site defines Primary Insurance Amount (PIA) as the benefit you would receive at Normal Retirement Age. Sound circular? Good well then welcome to your government. Folks if you thought this would all make sense where have you been living the last 20,30.40 years?

Anyway to the point. Your normal retirement age is when you receive the benefit that follows the SSA’s formula which is explained as follows:

For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2011, or who dies in 2011 before becoming eligible for benefits, his/her PIA will be the sum of:

(a) 90 percent of the first $753 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $753 and through $4,542, plus
(c) 15 percent of his/her average indexed monthly earnings over $4,542.

And there you go. Taking benefits before your Normal Retirement Age – which is 67 for most of us in our pre-retirement years – or after your NRA, will result in reduced or increased PIA.

Bottom line is that social security provides a solid baseline to most Americans and from my experience, even among many middle- class retirees, this is the largest, stable income source in their “portfolio.”

And let’s think about this for a moment. What is social security really worth to you? Allow me to explain it this way. If your PIA (the monthly check you’ll get) is $1,600/month, it may seem like only a portion of your work salary but if you wanted to create that same income stream, safely, how much would you need to have? With interest rates as low as they are now, and let’s assume since this is for all retirement (hopefully a 20 year+ period for you) that we will use 20 year safe government bond rates for our explanation, how much money would we need earning say 3%, to give up $1,600/ month? And by the way, that is $22,000/year. You would need $640,000 in the bank to give you that every month at 3%!

Of course this is a simplistic way to look at it, but I don’t see many people valuing their social security the same as they would a $640,000 pile of cash sitting in government bonds! Remember to consider this income source and how it would value as an ASSET on your balance sheet using our example above. It may make you feel richer, and that’s not a bad feeling. Feel free to visit our social security main page for more information HERE.

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