Social Security Terms Explained
Plain-English definitions of common terms. No jargon, no confusion — just clear explanations to help you understand your benefits.
Adjusted Gross Income(AGI)
Your Adjusted Gross Income (AGI) is your total income from all sources minus specific deductions like IRA contributions, student loan interest, and alimony payments. This number is important because many tax benefits and exemptions are based on your AGI. You can find your AGI on Line 11 of your federal Form 1040 tax return.
Example: If you earned $75,000 in wages and contributed $5,000 to a traditional IRA, your AGI would be $70,000.
Go deeper: Social Security Claiming Timing and the IRMAA Lookback
Adjustment of the Reduction Factor(ARF)
If you claim before full retirement age while still working, the earnings test can withhold some of your monthly payments. That money is not lost. When you reach full retirement age, SSA recalculates your benefit as if you had claimed later by the number of months that were withheld. The reduction for claiming early shrinks, and the higher monthly amount is paid from then on, for life.
Example: Claim at 62 with a full retirement age of 67 and have 12 months of payments withheld while you work. At 67, SSA treats the claim as starting at 63, so the permanent reduction drops from 30% to 25%.
Average Indexed Monthly Earnings(AIME)
The Social Security Administration calculates your Average Indexed Monthly Earnings by taking your 35 highest-earning years, adjusting earlier years for wage inflation, adding them up, and dividing by 420 (the number of months in 35 years). This number is then used to calculate your PIA (Primary Insurance Amount). If you worked fewer than 35 years, zeros are averaged in for the missing years.
Example: If your indexed earnings over 35 years totaled $2.1 million, your AIME would be $5,000 ($2.1M ÷ 420 months).
Go deeper: Business Owner Optimizer: Repair the Zero Years in Your 35-Year Average
Break-Even Age
The break-even age is when the total lifetime benefits from claiming later equal what you would have received by claiming earlier. Before this age, the early claimer is ahead; after this age, the person who delayed comes out ahead. Break-even ages typically fall in the late 70s to early 80s depending on your claiming ages being compared.
Example: Comparing claiming at 62 vs. 67: if your break-even age is 78, and you live past 78, you'll receive more total money by having waited until 67.
Go deeper: Your Client's Breakeven Isn't 80. It's 88.
Cost-of-Living Adjustment(COLA)
Each year, Social Security benefits are adjusted based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This Cost-of-Living Adjustment (COLA) helps your benefits keep pace with rising prices. The adjustment is typically announced in October and takes effect in January. In years with low or no inflation, there may be little or no COLA.
Example: If your monthly benefit is $2,000 and the COLA is 2.5%, your new benefit would be $2,050 starting in January.
Go deeper: Social Security & Medicare 2027: Every Number in One Place
Delayed Retirement Credits
For each month you delay claiming Social Security past your Full Retirement Age (up to age 70), you earn Delayed Retirement Credits that permanently increase your benefit. The increase is 8% per year (or ⅔% per month) for those born in 1943 or later. These credits are valuable because they're guaranteed and permanent — your higher benefit continues for life and also provides a higher base for survivor benefits.
Example: If your FRA is 67 and your PIA is $2,000, waiting until 70 would give you $2,480/month (24% more) for life.
Go deeper: When “Delay to 70” Breaks: Who Else Is on the Earnings Record
Early Claiming Reduction
If you claim Social Security before your Full Retirement Age, your benefit is permanently reduced. The reduction is 5/9 of 1% per month for the first 36 months early, then 5/12 of 1% for each additional month. Claiming at 62 (the earliest possible) with a FRA of 67 means a 30% permanent reduction from your PIA.
Example: If your PIA at FRA (67) would be $2,000, claiming at 62 would permanently reduce it to about $1,400/month.
Go deeper: Claiming Social Security Early for Your Healthiest Years
Full Retirement Age(FRA)
Your Full Retirement Age is when you're entitled to receive your full Primary Insurance Amount (PIA) from Social Security. It depends on your birth year: if you were born in 1960 or later, your FRA is 67. For those born between 1943-1959, it ranges from 66 to 66 and 10 months. Claiming before FRA reduces your benefit; waiting past FRA increases it up to age 70.
Example: If you were born in 1960, your FRA is 67. You can claim as early as 62, but your benefit would be reduced by about 30%.
Go deeper: Spousal Benefits Explained: What Couples Need to Know
Government Pension Offset (Repealed)(GPO)
The Government Pension Offset previously reduced spousal or survivor Social Security benefits for people with government pensions from non-covered work. The Social Security Fairness Act (HR82) repealed GPO in January 2025. Spousal and survivor benefits that the offset once erased are now payable in full, and MySSAgent's analysis reflects the repeal.
Example: Before repeal, a $3,000/month government pension would have wiped out a $1,400 spousal benefit entirely. Under the Social Security Fairness Act, that spousal benefit is paid in full.
Go deeper: Free Spousal & Survivor Strategy Guide
Income-Related Monthly Adjustment Amount(IRMAA)
IRMAA is a surcharge added to your Medicare Part B and Part D premiums when your income is above a set threshold. Two things make it matter for claiming decisions. First, it is decided on a two-year lookback — your premiums this year are based on the modified adjusted gross income on the tax return you filed two years ago. Second, it is a cliff, not a slope: one dollar over a threshold moves you into the next bracket for the whole year, rather than phasing in gradually. Because Social Security benefits, Roth conversions and retirement account withdrawals all feed the income figure that IRMAA reads, the year you claim and the years around it can change what you pay for Medicare later. If your income has dropped since that return because of a life-changing event — retirement among them — you can ask SSA to reconsider using your current income instead.
Example: A couple who convert an extra dollar of IRA money in the year they turn 63 can land above a threshold, and pay the higher Medicare premium for all twelve months of the year they turn 65.
Go deeper: Social Security Claiming Timing and the IRMAA Lookback
Modified Adjusted Gross Income(MAGI)
For Medicare, modified adjusted gross income is your adjusted gross income plus any tax-exempt interest. It is the figure Social Security reads from your tax return two years earlier to decide whether you owe IRMAA on your Medicare premiums. The taxable part of your Social Security counts, because it is already inside adjusted gross income, and so do IRA withdrawals, Roth conversions and capital gains. Other programs define MAGI differently: the Affordable Care Act version also adds back the untaxed part of Social Security. When a planner quotes a MAGI, it is worth asking which definition they mean.
Example: A couple with $190,000 of adjusted gross income and $12,000 of municipal-bond interest has a Medicare MAGI of $202,000.
Go deeper: Social Security Claiming Timing and the IRMAA Lookback
Primary Insurance Amount(PIA)
Your Primary Insurance Amount is the monthly benefit you would receive if you claim Social Security at exactly your Full Retirement Age (FRA). It's calculated from your AIME using a formula with 'bend points' that gives lower earners a higher percentage of their earnings replaced. If you claim before FRA, you receive less than your PIA; if you claim after FRA, you receive more.
Example: If your PIA is $2,500, that's what you'd receive monthly by claiming at age 67 (if that's your FRA). Claiming at 62 might reduce it to about $1,750.
Go deeper: Claiming Age Comparison Tool: 62 to 70, Side by Side
Spousal Benefits
A spouse can receive up to 50% of their partner's PIA if they claim at their own Full Retirement Age. You must be married (or divorced but married for at least 10 years) and your spouse must have filed for their own benefits (or you must be divorced). You'll receive the higher of your own benefit or the spousal benefit — not both.
Example: If your spouse's PIA is $3,000, you could receive up to $1,500 as a spousal benefit at your FRA — if that's more than your own benefit.
Go deeper: Optimal Social Security Strategy for Married Couples
State Tax on Social Security
Most states do not tax Social Security benefits. In 2026, 8 still tax them to some degree: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont. Most of those exempt benefits below an income threshold or above a certain age, so a great many residents of a "taxing" state owe nothing on their benefits. What you actually owe depends on your total income and filing status — and it is separate from the federal tax on benefits, which applies wherever you live.
Survivor Benefits
When a Social Security recipient (or eligible worker) dies, their surviving spouse can receive survivor benefits. At Full Retirement Age, a widow or widower can receive 100% of the deceased's benefit. Survivor benefits can be claimed as early as age 60 (or 50 if disabled), though claiming early means a reduced benefit. Children under 18 (or 19 if in high school) may also qualify.
Example: If your spouse received $2,800/month and passes away, you could receive that full amount as a survivor benefit at your FRA.
Go deeper: The Widow's Gap: A Plan Has to Survive the First Death
Windfall Elimination Provision (Repealed)(WEP)
The Windfall Elimination Provision previously reduced Social Security benefits for people who also had pensions from work not covered by Social Security — many teachers, firefighters, police officers, and other public-sector workers. The Social Security Fairness Act (HR82) repealed WEP in January 2025. Affected retirees now receive their full earned benefit, and MySSAgent's analysis reflects the repeal.
Example: Before repeal, a retired teacher with a state pension might have seen her Social Security benefit reduced by up to $400/month. Under the Social Security Fairness Act, that full amount is back in her monthly check.
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