There’s good and bad news about social security for future retirees
If you have not yet reached age 62, you are not eligible for Social Security retirement benefits, but you will be in the future, provided you work long enough. These future retirement checks will likely be an important source of income, and it’s important to know how they work and what they are likely to do for you in your retirement years.
In particular, you should know that there’s good news and bad news when it comes to a key Social Security rule that affects the amount of your benefit checks.
Here is the good news for future retirees
Let’s start with the positive. In recent years, each new group of people who have become eligible for Social Security have had to wait longer than the people who came before them to get their full standard benefit.
Your standard benefit is the amount of Social Security retirement income you are entitled to based on your average earnings during your 35 highest earning years. It is also called your primary insurance amount (PIA). You will only receive your PIA if you apply for your first benefit check at a specific age designated by the Social Security Administration. The specific age is called the full retirement age (FRA).
For those turning 62 in 2022 or later, FRA is 67. But for anyone who turned 62 before that, FRA was earlier.
- For anyone who turned 62 in 2021, FRA was 66 and 10 months.
- For those who turned 62 and first became eligible for benefits in 2020, it was 66 and 8 months.
- For those turning 62 in 2019, it was 66 and 6 months.
You probably notice a trend here. The full retirement age is based on year of birth, and has been gradually lowered by two months for anyone born in 1955 or later. For those born earlier, it was 66 for anyone with a birth year between 1943 and 1954. For Americans older than that, it was 65.
FRA will not change after 2022, however. Anyone who turns 62 and becomes eligible for Social Security benefits in the future will have the same 67-year-old FRA. This means that, unlike your older peers, you won’t have to worry about the FRA keeping changing and forcing you to defer your claim for benefits. at least two months longer than those immediately preceding you.
Here’s the bad news
The bad news, of course, should be obvious. While future retirees don’t have to worry about changing FRAs later, the reason this isn’t an issue is that they’re already stuck with the latest possible full retirement age.
Not only does this mean they can’t claim their full benefits until age 67 – long after most people eventually retire – but there are also two other important consequences to be aware of.
- Working while collecting social security could have an impact on benefits for longer: Once you reach FRA, you can work as much as you want without social security benefits being affected. But this is not the case if you have not yet reached FRA. Benefits will be reduced by $1 for every $2 earned above $19,560 if you do not reach FRA for the entire year you work, and by $1 for every $3 earned above 51,960 $ if you hit FRA at some point in the year but not yet. If you plan to work and get benefits at the same time, you should be aware that these rules will affect you longer due to your subsequent FRA.
- They will be less likely to increase their benefits due to deferred pension credits: Deferred Retirement Credits increase your standard Social Security benefit by 2/3 of 1% per month for each month you do not request a check after reaching FRA. With the latest possible FRA of age 67, you can earn a maximum of three years of these credits since they are only available up to age 70. This means the maximum you can increase your benefit is 24% above the standard amount, while earlier retirees could get a bigger boost.
Future retirees should consider that having the latest possible FRA affects the potential income that Social Security can provide. They must plan accordingly by estimating how much they will receive as well as deciding when to apply for benefits and whether to work while receiving them.