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Are you trying to figure out what the retirement age is for Social Security? Do you want to make sure that you maximize your Social Security benefits before you potentially make a costly mistake? Are you confused even more after reading through the Social Security Administration website? Or even better, talking to your friends who are “experts” on social security- “trust me” they say...If you are like any of my clients, you know that trying to understand all of these things is like trying to learn a different language. Don’t worry, in this article, you will learn what the “Full Retirement Age” (FRA) is and what YOUR specific retirement age is (because yes, it’s different based on your date of birth).You will also learn why this is important for you to understand this concept as well as what is impacted by your Full Retirement Age. A head’s up- basically everything you care about, can be impacted. I wish I was joking, but honestly, how much you decide to work, how much you receive in Social Security benefits, how much you pay in taxes, what your spouse's benefit or survivor’s benefits would be, and...you get the point.SO…let’s get into it!
This blog post is all about the full retirement age
The Social Security Administration (founded way back in the day, August 14th, 1935) was created to pay workers a retirement benefit beginning at their Full Retirement Age or “normal retirement age” which was 65 at that time. That age is now 67 for most people retiring today. “What? I have to work longer?” Yep, you do if you want more money in the way of benefits. People keep living longer, and the number of people entering the workforce and paying into the Social Security system isn’t enough to sustain the benefits received by those who retire and start collecting benefits.The way to counterbalance that is to, you guessed it: Make people work longer! “But I thought I could start receiving my social security benefits at 62? Isn’t THAT the normal retirement age?”Although you ARE eligible to receive benefits at age 62, (the earliest eligible age to apply for social security, as long as you have 40 credits) you would receive a heavily reduced amount of benefits if you do choose to apply and start receiving benefits at the earliest possible age. You are also punished (did I say that?), in a way, for receiving benefits early. As you will read below, your benefits are reduced and you are taxed more heavily if you keep working after receiving benefits if you are NOT of Full Retirement age yet. Basically, your Full Retirement Age is the age when the Social Security Administration doesn’t consider you a HUGE liability for the system. (But that’s only because they don’t know you love to work out and you eat your veggies every day shhh I won’t tell them you will live until 105)
Ok, listen, I am sharing the numbers straight from the source. I know, it's not fair for you to have to work longer just because you were born in a later year. Don't get mad at me though, I am just sharing the facts.
Let’s get straight to the point.You have been working your butt off. You want to reap the benefits of what you have been sowing. Am I right? Right. The truth is this: If you apply for and start collecting benefits when you are first eligible, at 62, you are leaving a lot of money on the table (Usually. Unless you are really sick or your ancestors all seem to pass away right after receiving social security benefits).At 62, your benefit is reduced by 25-30% of your benefit at Full Retirement Age. The percentage depends on...yep...the year you were born. So unfair.So, if you were born in 1964, a $1,000 benefit at Full Retirement Age, would end up being a $700 monthly benefit check. Crazy! Well, what’s even crazier, is the fact that we don’t talk enough about this and not enough people seek a Certified Financial Planner® to help them (I get it) and people think that the Full Retirement Age is the “normal” or “average” time to receive benefits. Not true. No one is normal. No one is in the same situation, and no one should go by “normal” retirement age.You might be wondering WHY I am saying this. Here is why:Even at your Full Retirement, you are potentially leaving A LOT of money on the table. Yes! (I see all of you downloading your Motley Fool’s presentation about the THOUSANDS of dollars you are being cheated out of regarding Social Security. No, it’s not a secret. But it might as well be since it’s not something we talk about)Social Security retirement benefits are increased by a certain percentage every SINGLE month you choose to delay starting your benefits past Full Retirement Age and up until 70. The latest you can wait to receive benefits is 70.How much do they increase by?Ding. Ding. Ding. Ding. Ding. You guessed it.It depends on when you were born but they can be increased from 5.5% (if you were born between 1933-134) and 8% (if you were born in 1943 or later) There you have it, folks, it doesn’t get better than an automatic. 8% growth month over month. Being normal might just cost you that growth if you could have waited and you didn’t. Luckily, for you, you found this article written by your go-to nerd, who seems to enjoy making these incredibly important but grueling topics a bit more enjoyable.
Remember that I said everything you care about can be impacted by when you start receiving benefits? I meant that.Let’s break it down. Not in a particular order because God forbid you to care more about working than your spouse's benefits!
I know I used a strong word when I said, the Social Security Administration increased the Full Retirement Age to “force” people to keep working without receiving benefits, but this is what I mean. If you start receiving benefits and you are below your Full Retirement Age, you are under an earnings limitation if you are still working even after you start receiving benefits. An earnings limitation is simply a yearly income limit set forth by the Social Security Administration every year. In 2021, the limit is $18,960 if you are under the Full Retirement Age.$50,520 the year you reach Full Retirement Age.Throughout the years, people always ask me what counts as “earned income” and well, I would rather you hear it straight from the horse's mouth:“If you work for someone else, only your wages count toward Social Security’s earnings limits. If you’re self-employed, we count only your net earnings from self-employment. For the earnings limits, we don’t count income such as other government benefits, investment earnings, interest, pensions, annuities, and capital gains. We do count an employee’s contribution to a pension or retirement plan, however, if the contribution amount is included in the employee’s gross wages.”If you are still working, and make more than those limits…
How much are they reduced by?Below FRA ($1 for $2) $18,960Persons reaching FRA ($1 for $3) $50,520(Applies only to earnings for months prior to attaining FRA)Now, one thing I want to make very clear is how the reduction plays out. Again, a lot of confusion around this, so let’s just see what the numbers would look like. Let’s say you start receiving benefits at 64 (under FRA) and your monthly benefit is $700. Let’s also assume your yearly income is $22,000.This means that if you were not working, you would get a total of $700 X 12 (months) = $8,400 yearly Social Security benefits. But, because you still work, (you were taught to be an overachiever let’s face it) your total yearly benefit would be this instead:$22,000 (annual income) - $18,960 (social security earning limit in 2021) = $3,040$3,040 (income over the limit) / 2 ( the benefit reduction of $1 for every $2 earned under FRA)= $1,520 yearly deduction of Social Security benefitsWoooo now that I made you work even more, (don’t worry this doesn’t qualify as earned income per guidelines above) you can see that instead of $8,400 yearly benefits, you would receive, a total of $6,880Your $8,400 turned into $6,880 just for being a hard worker. How ‘bout that??Anyway, let’s keep going.
Just in case you didn’t know this, your spouse is entitled to half of your benefit if your benefit is higher than their own benefit or if they don’t have benefits of their own (stay-at-home spouse). However, just like everything else in life, if you screw this up, you are also to blame for your spouse's benefits being lowered. Except, instead of the benefits being lowered by 25-30% depending on your date of birth, your spouse's benefits can be lowered by 30-35%!!!I am not kidding. You want to keep reading to avoid a costly mistake.What exactly does that look like?Back to our example:You were born in 1964, your monthly Social Security benefit at Full Retirement Age would be $1,000 but if you file at 62, it would be reduced by 30% to $700 a month.If your spouse was born in 1964 and is supposed to receive $500 (half of your benefit at FRA) a month, if you file at 62, your spouse's benefits would be reduced by a whopping 35% to $325 a month!!!You read that correctly. Shall we keep going? There is more ground to cover!
Although taxes are unavoidable, it does feel like a punch in the gut to have to pay taxes on up to 85% of your monthly social security benefits even if you wait to receive benefits until after your Full Retirement Age. Single filers:Earning between $25,000 and $34,000 may pay taxes on up to 50% of your benefitsEarning $34,000+ may pay taxes on up to 8% of your benefitsMarried Filing Jointly filers:Earring between $32-44,000 may pay taxes on up to 50% of your benefitsEarning $44,000+ may pay taxes on up to 8% of your benefits
If you are not convinced about how important the Full Retirement Age is for your future (if you are living it.. Keep reading) then, I am questioning my whole life’s mission with helping people in this area. Kind of joking. Kind of serious. Ok super serious.The truth is that you work hard and you should be able to have a strategy that helps you maximize your income in the future.
You actually can increase your monthly income if you continue to work but whether or not you should keep working depends on a lot of factors. Mainly health and your need for additional income. It can be worth considering it if you are say, 64 and in good health because you can keep working and increase your benefit for 6 extra years. Perhaps it won't be much but it's worth looking into, especially, if you are able to secure a high-paying job. Social Security benefits are comprised of the 35 highest-earning years. Do you see how 6 years of high earning can make a decent impact?On the flip side, if you are 68 and not feeling too good these days, the burden of getting back into the work field could end up costing you your health.
If you are still working, you are in good health, you like your job and you see no reason to stop working, delaying benefits may be the best way to plan ahead. This is not a one size fits all answer though. There is such a thing as a breakeven benefit analysis that we Financial Planners like to run because it helps clients make the best decision for their situation. The fact that you are educating yourself is also a huge advantage and the best way to plan.
The best resources I use and share with clients are the benefits planner and the benefits calculator at the Social Security Administration. You should definitely create a profile if you have not already done so.You should also make sure you go through the earnings history that the Social Security Administration has on file for you to verify that all of your amounts look accurate. I know it can be extremely difficult to verify that, but, if you have tax records that can certainly help.
Great job for making it all the way through this post!!! If you did, you learned exactly what Full Retirement Age is as it relates to retirement and Social Security benefits. You learned what your specific Full Retirement Age is. We also discussed why it is such an important age.In this article, you also learned how to avoid missing out on thousands of dollars in social security benefits every single year. Lastly, now you understand that your Full Retirement Age affects your decisions about working, taxes, your spouse's benefits, and your overall future.I hope that you enjoyed reading this as much as I enjoyed writing it.A few laughs along the way are always good!!In the comments below, please let me know what your main concern is regarding social security benefits???If you have any questions, please feel free to reach out at pam@fulfilledfinances.comAlways happy to help! [author_info]Pamela Rodriguez CFP®[/author_info]
