Actuarial Reduction
An age reduction on monthly benefit amounts.

Your monthly Social Security benefits will include an age reduction if you receive your benefits:

• at ages 62-64 — if you are a retired worker, a wife or husband of a retired or disabled worker (no child beneficiary in care), or a divorced spouse.
• at ages 60-64 — if you are a widow, widower, or a surviving divorced spouse.
• at ages 50-59 — if you are disabled widow, disabled widower, or disabled divorced spouse

The benefits continue at a reduced rate even after age 65. Social Security recomputes the reduced rate for all beneficiaries at age 65. Also at age 62 for a widow, widower, and a surviving divorced spouse — to omit months not paid and to add any additional earnings.

Annual Exempt Amount
This is the amount you can earn and still receive benefits.

• Under age 65 — $1 in benefits withheld for each $2 of earnings.
  Annual exempt amount — $10,680 for 2001
• Over age 65 — No limit to earnings. However, benefits may be taxable.

These amounts increase yearly as the levels of average wages rise.

Annual Maximum Taxable Limit
This is the annual limit for Social Security taxes and credit. Any amount earned above the limit is not taxable nor creditable for benefit computation purposes. In 2005 the maximum is $90,000

Auxiliary Benefits
This is a monthly benefit paid to a spouse or child. The benefit is from a retired, disabled worker, or a deceased worker.

Average Indexed Monthly Earnings
The amount of earnings that determines your benefit amount. Most workers will have their earnings indexed. Indexing updates your old earnings relative to today's earnings.

Base Years
Base years are computation years. The years are after 1950 up to but not including the year you receive Social Security benefits. These years are part of the formula determining your benefit amount.

Bend Points
The dollar amounts defining the average monthly earnings or AIME brackets in the benefit formulas. For 2001 the bend points are 90% of the first $561, 32% of earnings over $561 and through $3,381, plus 15% of earnings over $3,381. The bend points change each year if the cost-of-living rises. The bend points used in the family maximum benefit are different.

Beneficiary
A person who is eligible for benefits on the basis of their own earnings record (primary beneficiary) or on someone else's record (auxiliary beneficiary).

Child’s Benefit
A monthly benefit paid to a child or eligible grandchild of a retired, disabled, or deceased worker. The child must meet one of the following situations to receive benefits:

• under age 18 and unmarried; or
• an elementary or secondary student between ages 18 and 19 and unmarried; or
• an unmarried disabled child age 18 or older whose disability began before age 22.

The grandchild must meet all the requirements above as well as the following requirements for benefits:

• the child must live with the grandparent in the United States;
• the child must be dependent on the grandparent for at least half of his or her support; and
• if the parents of the child are alive and well one grandparent must be deceased and the child adopted by the grandparent's surviving spouse.

Computation Formula and Method
The method the Social Security Office uses to determine the exact amount of each beneficiary's monthly check. (See the Wage-Indexed Formula Method).

Computation Years
The number of years that determines your AIME and final monthly check. If you were born in 1929 or later, you need 35 computation years. The computation years are the years of your highest earnings.

Cost-Of-Living Adjustments
The automatic increases on Social Security benefits based on the lesser of the increase in the consumer price index or the increase in average wages. In 2001, the increase was 3.5%.

Covered Employment
All employment and self-employment worked under the Social Security system. Only earnings below the maximum are taxable and creditable for social security purposes (see annual maximum taxable limit).

Credit
To become eligible for social security benefits or have " insured status" you must have 40 credits You earn one credit for each $830 of wages for which you paid social security taxes. This amount is subject to annual automatic increases in proportion to average earnings. You may receive a maximum of 4 credits of coverage in a calendar year.

Current Payment Status
You are in a current payment status if you are receiving a benefit.

Currently Insured Status
Currently insured means eligibility for survivors' benefits. To qualify as currently insured, the survivor needs 1 1/2 years of coverage in the 3 1/4 years before the worker's death.

Delayed Retirement Credits (DRC)
Work credits that increase your monthly benefit. The increase is 3% of the benefit for each year after age 65 that you work (1/4 of 1% for each month). The increases apply only to the benefits paid to the wage earner and the surviving spouse. The DRC will gradually increase to 8% a year between 1990 and 2008. At present, the DRC is 5% per year.

Disability
The inability to engage in substantial gainful activity because of any physical or mental impairment — for at least 12 months. You must also be continuously disabled for 5 months. See Substantial Gainful Activity.

Disabled Child’s Benefit
A monthly benefit payable to a disabled child age 18 or older. The disabled child may be an eligible child or eligible grandchild of a retired, deceased, or disabled worker. The child’s disability must have begun before age 22.

Disabled Worker Benefit
A monthly benefit payable to a disabled worker under age 65.

Earnings
This term includes all earnings from employment and net earnings from self-employment, whether taxable or covered for Social Security purposes.

Earnings Record
A record kept by your Social Security number of your reported covered earnings. Your earnings record determines your Social Security benefit.

Earnings Test
A restriction on the amount of earnings you may receive from covered or non-covered employment without a reduction in benefits. (See annual exempt amount.)

Elapsed Years
The number of years in the Social Security formula, between 1950 and the year in which you turn 62 years old.

Eligible Worker
You have met the insured status and age requirements for benefits but you have not filed an application.

Entitlement
You meet all the requirements in the Social Security law and you file an application for benefits.

Excess Earnings
Amount earned over the annual exempt amount that could cause a reduction in benefits. (See annual exempt amount.)

Fully Insured
You have enough coverage to meet the eligibility requirements for benefits.

Government Pension Offset - CSRS
An offset that applies if you are a spouse or surviving spouse eligible for a Social Security benefit and for your own Government retirement benefit. CSRS employees who transferred to FERS after 12-31-87 must have 5 years of covered FERS service to be excluded.

Indexed Earnings
Your covered wages that are indexed to keep up with inflation.

Indexing
Indexing is a computation process that updates your old wages. It is the multiplying of wages from prior years by a factor that will increase your old wages to reflect wages in today’s economy.

Insured Status
The status of having enough coverage to meet the eligibility requirements for retirement, disability, or survivor benefits.

Lump-Sum Death Benefit
$255 payable to surviving spouse or child upon the death of a fully or currently insured worker.

Maximum Benefit
This is a mythical maximum. You could only get the maximum by working for 35 years with coverage at the maximum wage base in effect then. The maximum benefit if you retire in 2001 at age 65 is $1,536 per month.

Maximum Family Benefit
The maximum monthly amount payable on a worker's record. Whenever the total of the benefits payable to all the beneficiaries exceeds the maximum, all beneficiaries' benefits reduce to bring the total within the maximum. A benefit paid to a divorced or surviving divorced spouse has no affect on the family benefit.

Monthly Benefit Amount
The amount payable after reduction, if necessary, for age, family maximum, and other reasons but before any deduction for Medicare premiums.

Period of Disability
A continuous period of at least 5 months of disability which Social Security requires before disability benefits are payable.

Permanently Insured
Having the necessary quarters of coverage for a retired-worker benefit. The maximum needed is 40 quarters of coverage.

Primary Insurance Amount (PIA)
The monthly amount payable to a retired worker who receives benefits at age 65 or to a disabled worker who never receives an age-reduced benefit. This amount, which is related to the worker's average indexed monthly earnings, is also the amount used as a base for computing all types of benefits payable on the basis of one individual's record.

Quarters of Coverage
Now called Credits. The amount of coverage needed for insured status. This amount is subject to annual automatic increases in proportion to average earnings. The amount needed was $830 on January 2001. You may receive a maximum of 4 credits of coverage in a calendar year.

Replacement Ratio
A measure of Social Security's effectiveness in providing for retirement needs. Normally, you need among 60 percent (at a very minimum) and 80 percent (at a moderate level) of your pre-retirement income. In the future, Social Security will replace a smaller and smaller percentage of pre-retirement income. In some opinions, by the year 2000, Social Security will replace a maximum of 35 percent of pre-retirement income.

Retroactive Benefits
A provision that allows you to apply for and receive retroactive benefits up to 6 months before you file a formal application for retirement. This does not apply before age 65.

Self-employment
Operation of a trade or business by an individual or by a partnership in which the Social Security tax is paid.

Social Insurance
The concept of Social Security. The Government balances the worker's need for retirement income (also called equity) against lower income people's need for an adequate income (called adequacy). Germany started this program in 1885.

Social Security Number
The number issued to you by the Social Security Administration. Your record of earnings and benefits are filed by your Social Security number.

Taxable Earnings
Taxable wages and self-employment income under the maximum taxable limit.

Termination
Stopping the payment of a specific type of benefit because you lose your right to receive the benefit (for example, marriage or death).

Wage-Indexed Formula Method
This method applies if you are eligible for benefits in 1979 or later. The formula is based on a wage-indexed method of computing your benefit. Under the wage-indexed formula method of computing a benefit. The Primary Insurance Amount (PIA) is computed from the Average Indexed Monthly Earnings (AIME), where the AIME is an average of lifetime earnings. The AIME calculation involves determining how many years of earnings to use in the average, indexing the yearly earnings, and choosing which years to use. The number of years used in the average is determined by the year of your birth. Before the highest years of earnings are determined and averaged, the yearly earnings are indexed to make earnings of different years comparable by adjusting for changes in average wages. The year to which earnings are indexed is 2 years before the year you are eligible. Earnings after the base year are not indexed, but are used directly in the AIME calculation. Once the AIME is computed, the PIA is determined by applying a PIA formula. The general PIA formula is 90% of AIME up to the first bend point, plus 32% of AIME in excess of the first bend point up to the second bend point, plus 15% of AIME in excess of the second bend point. The "bend points" are different for the retirement calculation and the maximum family benefit calculation and vary with year of eligibility.

Weighted Benefits
A weighted formula that provides lower paid workers a larger percentage of average monthly earnings — lower paid workers have less margin for reduction in their income than higher paid workers.

Year of Eligibility
For computing benefits, year of eligibility means:

• for retirement benefits - the year of reaching age 62;
• for disability benefits - the earlier of the year of onset of disability or the year of reaching age 62; and
• for survivor benefits - the earlier of the year of death or the year of reaching age 62.