Chapters

00:00 Introduction to Social Security for PERS Members

00:37 Old Age, Survivors, and Disability Insurance (OASDI)

01:12 Comparing PERS and Social Security Benefits

03:28 Understanding Social Security Credits and Eligibility

05:26 Calculating Social Security Benefits

08:18 Claiming Social Security: Timing and Impact

10:25 Family Benefits and Eligibility

11:44 When and How to Apply for Social Security

12:15 Working While Drawing Social Security

14:45 Tax Implications for Social Security Benefits

16:42 Action Items for PERS Members

17:30 Preview of Next Video and Calls to Action

18:36 Disclaimer

Transcript

Hi everyone, I'm Ryan Earley, vested PERS member, former public school finance officer, current financial planner, and host of the PERS Pro YouTube channel. Today, we're providing a comprehensive overview of Social Security specifically tailored for Mississippi PERS members. We'll compare how it stacks up against your PERS benefit, the important features of the Social Security program you need to be familiar with, and we'll explore the benefits your spouse or children may be eligible for. Let's get started.

Many people use the term Social Security and retirement interchangeably, but retirement is actually just one of five major benefit programs administered by the Social Security Administration. These programs are collectively part of what's known as OASDI, which stands for Old Age Survivors and Disability Insurance. While we are focusing on the retirement portion today, along with briefly covering family benefits later in the video, it's important to remember that your Social Security taxes you pay with every paycheck also fund protection for your family if you pass away early or become disabled before retirement.

Most PERS members know that Social Security is a lifetime retirement benefit, but how does it stack up against your PERS retirement benefit? This table compares the benefits available under PERS tiers one through four against Social Security in 2026. We are intentionally ignoring PERS tier five since it is no longer just a defined benefit program. First, look at how rules are applied. In PERS, your benefits are locked in based on your hire date. With Social Security, it's all about your date of birth. When it comes to the minimum age you can collect, is very flexible. Depending on your tier, you could potentially retire at any age once you hit your service requirement, either 25 or 30 years of service. Social Security is much more rigid. The absolute earliest you can touch those benefits is age 62. Both programs provide a guaranteed lifetime benefit, but their vesting schedules differ. You're likely used to the PERS four or eight year vesting requirement. But for Social Security, you generally need to earn 40 credits, which typically takes about 10 years. Now let's talk about your cost of living adjustment in retirement. PERS gives you a fixed 3 % COLA, which is incredibly predictable. Social Security's COLA is a moving target. It's variable and based on inflation rates, specifically CPIW, which is a measure of inflation for households where at least 50 % of household income comes from wages earned.  Look at the 2026 payroll contribution rates. Your contributions are higher for PERS at 9 % compared to Social Security at 6.2%. However, the earnings limits are different too. PERS covers you up to $360,000 in earnings, whereas Social Security stops taxing you and stops counting your earnings towards your benefit at $184,500. The formulas are also distinctly different. PERS focuses on your service credit and your highest four years of pay, Social Security looks at your highest 35 years of earnings and the age you choose to claim. And finally, big one for many of you, PERS offers a partial lump sum option at retirement. With Social Security, there is no such option. It is strictly a monthly check for your life.

So how do you qualify for Social Security retirement benefits? As mentioned briefly before, you generally need 40 credits to become vested.  In 2026, you earn one credit for every $1,890 in covered earnings, up to a maximum of four credits per year. This means most PERS members will be eligible for Social Security benefits after 10 years of work at a rate of four credits per year. One of the most misunderstood parts of the credits is when you earn them. You can actually earn all four credits in a single month in 2026.  if you earn at least $7,560, which is $1,890 times four. 

Let's look at some examples to demonstrate how credits are earned and limited. An example of a paternity or maternity leave. Let's assume a PERS member earns $10,000 total in January and February of 2026, but takes the rest of the year off for parental leave. This PERS member still earns the full four credits for that year because they surpassed the annual $7,560 threshold. Now let's look at an excess earnings example. Let's assume a PERS member earns $75,000 in 2025 and makes $5,000 in 2026 before leaving the workforce to be a stay-at-home parent. Even though this PERS member has excess earnings from 2025, none of those earnings will carry over and earn them credits in 2026. In this example, the PERS member will only earn two credits. $5,000 divided by $1,890 equals 2.65 rounded down to two. You can never earn more than four credits in one calendar year, and any excess earnings do not carry over. 

Once you have your 40 credits, how are your Social Security benefits calculated? This is where it gets very technical, and in my opinion, even more technical than the PERS formula.  The Social Security Benefit Formula is based on two numbers. AIME, which stands for Average Index Monthly Earnings and PIA, which stands for Primary Insurance Amount. AIME or Average Index Monthly Earnings. You need to know that this number is based on adding up your top 35 years of earnings. These do not have to be consecutive. To do this, your total earnings for every calendar year is adjusted for inflation in today's dollars, then the top 35 inflation adjusted years are added together and finally averaged into a monthly amount. It's important to note that if you don't have 35 years of earnings, then $0 is included for those years and included in your monthly amount. The resulting monthly average is your AIME or average indexed monthly earnings. 

PIA or primary insurance amount. You need to know that this number becomes your base monthly benefit at full retirement age. The formula for primary insurance amount puts your average index monthly earnings we just discussed into what are called bend points, which think of in a similar manner to marginal federal income tax rates. However, unlike marginal federal tax rates with bend points, higher rates are applied to lower earnings and lower rates are applied to higher earnings.  The bend points for 2026 are as follows. 90 % of AIME under $1,287, 32 % of AIME between $1,287 and $7,749, and finally 15 % of AIME over $7,749.  

Let's look at an example of a PERS member with an average index monthly earnings or AIME amount of $5,000. Applying these bend points in 2026 would give us the following results. 90 % of the first $1,286 equals $1,157.40, 32 % of the next $3,714 equals $1,188.48, and finally, there will be none applied against 15 % since our $5,000 monthly AIME has been exhausted. Our total primary insurance amount would be $2,345.88 per month at full retirement age. Fortunately, you don't have to do this math by hand like I just did. You can view your Social Security statement, mail or online to review your actual projections based on your earnings history. There are also calculators available online from the Social Security Administration if you want to see how different future earning scenarios will impact your base benefit at full retirement age. 

So now that you know how your primary insurance amount is calculated at full retirement age, what options do you have to claim before or after full retirement age and how does that decision impact your benefit you receive? Early retirement phase, age 62 to full retirement age. Regardless of when you were born, the earliest you can claim Social Security is age 62. Claiming early will permanently reduce your benefit for life. Specifically, your benefit is reduced 5 ninths of 1 % for each full retirement age up to 36 months. If the number of months before full retirement age exceeds 36, then the benefit is further reduced 5 twelfths of 1 % per month. For example, if you claim Social Security at age 62 and your normal retirement age is 67, the number of reduction months is 60. This is five years times 12 months. This maximum reduction is calculated as 36 months times five nights of 1 % plus 24 months times five twelfths of 1%. The result is 30%, which would be the permanent reduction applied to your PIA if you retired at age 62. 

Full retirement age, this is 67 for those born in 1960 or later.  You get 100 % of your primary insurance amount. There is no reduction or increase applied. 

Delayed retirement phase, full retirement age to age 70. Regardless of when you were born, the latest you accrue delayed retirement credits is age 70. Claiming after full retirement age will permanently increase your benefit. Specifically, for those born after 1943, your benefit is increased by two-thirds of 1 % for every month you wait past your full retirement age. For example, If you claim Social Security at age 70 and your normal retirement age is 67, the number of delayed months is 36. The delayed credit is calculated at 36 months times two thirds of 1%. The result is 24%, which would be the permanent increase applied to your primary insurance amount.

Be careful not to overlook unique circumstances that may allow your family members to claim Social Security benefits based on your work history often without reducing your own retirement benefit. As you can see in the table, a spouse can receive up to half of your benefit once they hit age 62. But here's a hidden rule many miss. If your spouse is under age 62 care for your child who is under age 16 or disabled, they can still receive up to 50 % of your benefits before they turn 62. This also extends to divorced spouses. If you were married for at least a decade and they haven't remarried, your ex-spouse might be eligible for a benefit on your record. And don't worry, this does not impact the amount you or a current spouse receives. Finally, don't overlook your children. Unmarried children under 18 or 19 if they are still in secondary school can qualify if you are claiming benefits. Most importantly, if you have a child with a disability that began before age 22, they may be eligible for disabled adult child benefits on your record.  Keep in mind with all these scenarios, there is a family maximum limit, usually between a 150 % and 188 % of your benefit that limits the total amount a single family can draw across spouse and children benefits. 

Once you decide when you are going to begin drawing social security benefits, when should you apply and how do you do it? You should apply about four months before you want your benefits to start. If you want your retirement to start in July, you should begin applying in March.  Your first check for the month of July will actually arrive one month later in August after your retirement begins. You can apply for Social Security benefits online at ssa.gov, over the phone or in person at a local Social Security office. They'll be sure to make an appointment ahead of time. 

One of the biggest questions from PERS members is, can I work for a PERS agency and still draw Social Security? The answer is yes, but if you are under your full retirement age, Social Security will withhold benefits over certain thresholds. This is known as the earnings test. There are three different sets of rules depending on how close you are to your full retirement age. If you will be under the full retirement age the entire year, the annual earnings limit in 2026 is $24,480 and $1 will be withheld for every $2 over that limit. If you reach full retirement age in the year you are still working, the earnings limit for 2026 is $65,160 and $1 will be withheld for every $3 over that limit. Finally, beyond your full retirement age, there is no earnings limit and no money will be withheld from your Social Security benefits. It's important to understand what counts as earnings. Under this test, earnings include your W-2 wages or net self-employment income. It does not include your PERS pension, investment income or interest.

Let's look at an example with a PERS retiree named Sarah. Sarah is 63 years old, which is under her full retirement age, and receives $2,000 a month or $24,000 a year from Social Security. She decides to take a part-time job at a local school district earning $34,480 a year. Sarah is earning $10,000 above the $24,480 limit.  Since she is under full retirement age, age 63, Social Security will withhold $5,000 or half of the $10,000. 

This is the most critical point for PERS members to understand. Those withheld checks are not lost forever. They are essentially forced savings. When you finally reach your full retirement age, Social Security does a one-time recalculation.  They look at all the months they withheld your check and they permanently increase your monthly benefit as if you had retired later. Additionally, working after retirement adds more years of earnings to your Social Security record. If your return to work salary is higher than one of your top 35 years indexed, Social Security will automatically increase your base benefit to reflect those higher earnings. But do be aware that you will need to plan for the withheld benefits in the near term when building your retirement spending plan.

Now let's talk about the part everyone dreads, taxes. First, the good news for our local retirees. Mississippi is one of the most tax-friendly states in the country when it comes to retirees. Mississippi does not tax Social Security benefits at the state level. Federally, it's a different story. The IRS uses a specific formula called combined income to determine if your Social Security benefits are taxable. The formula is adjusted gross income, or AGI, plus non-taxable interest, plus 50 % of your Social Security benefits. That equals your combined income. Depending on your filing status and your combined income, you may pay taxes on 0%, 50%, or 85 % of your Social Security benefits at your ordinary federal income tax rate. 

Let's look at an example for a married PERS couple. The husband has a PERS pension of $40,000. Together they receive $30,000 in Social Security benefits. They also have $2,000 in non-taxable interest. Their combined income calculation would be their AGI, which is the pension, $40,000, plus non-taxable interest of $2,000, plus 50 % of their combined social security benefits, which is $15,000, and that gives a combined income of $57,000. Since $57,000 is well above the $44,000 threshold for joint filers, a significant portion, up to 85%, of their social security benefits will be subject to federal income tax at their ordinary federal income tax rate. Note, Social Security does not automatically withhold federal taxes.

If you don't plan ahead, you could end up with a large bill come April.  If you would like Social Security to withhold taxes from your Social Security benefit payments, use form IRS W4V, voluntary withholding request. You can choose to have exactly 7%, 10%, 12%, or 22 % of your monthly benefit withheld for federal income tax purposes.

If you want to learn more about your own Social Security benefit, here are your action items for today. One, download or review your statement. Go to ssa.gov and download your latest Social Security statement. If you haven't created an account yet, be sure to do so. Review your statement to find your full retirement age and your personalized monthly benefit estimate from age 62 to age 70. Two, understand the assumptions on your Social Security statement.  Make sure you fully understand the assumptions behind these estimates, including the estimated wages in future years. Three, audit your earnings history. Make sure your earnings history is accurate. Just remember that if you are a high earner, your earnings may have hit the FICA earnings limit for a given year.

I hope this video helps PERS members better understand Social Security retirement benefits. In our next video, we'll explore when should a PERS member claim Social Security. Please make sure you subscribe so you don't miss this and other videos in our new retirement series. If you found this video helpful, can thank me by hitting the thumbs up button and sharing it with other PERS members. If you have a follow-up question about PERS or anything else related to personal finance, please visit our website at perspro.ms click YouTube and submit your question or topic for a future episode. And finally, if you are looking for a financial planner that specializes in helping PERS members plan for retirement, including deciding when to claim Social Security, please visit our website at perspro.ms to learn more about our firm and to schedule your initial consultation. 

Thank you for your valuable public service to the state of Mississippi. We'll see you next time.

Disclaimer, this video is for educational and informational purposes only. Neither the host nor this YouTube channel are officially affiliated with, endorsed by, or sponsored by the Public Employees Retirement System of Mississippi. Always consult a qualified professional for personal advice specific to your situation.