This increase in social security benefits will be harder to earn next year
Many older people are interested in earning the maximum possible amount of social security income. This makes sense, since these benefits are guaranteed to last into your later years.
Unfortunately, future retirees will be less likely to increase their monthly benefits than those who came before them. Here’s why.
Why Future Retirees Will Miss Some Opportunities For More Social Security Money
Seniors who want more money in their monthly Social Security checks can get it by delaying their claim for benefits.
You see, older Americans are allowed to start their benefits at age 62. But, each person eligible for social security has a full retirement age (FRA). This is when they have to claim their benefit to get their primary insurance amount (their standard benefit based on average salary). Older Americans are also allowed to delay filing claims for benefits beyond their FRA.
Retirees who file claims before FRA receive a reduced monthly check due to so-called “early reporting penalties”. Those who delay increasing their monthly income by earning “deferred retirement credits” until age 70.
Avoiding early reporting penalties and earning deferred retirement credits are options seniors have to increase their monthly benefit amount once they are at the end of their careers.
Unfortunately, there will be fewer opportunities next year for seniors to get deferred retirement credits. In addition, future retirees are at greater risk of being hit with early reporting penalties next year and beyond.
This is because the full retirement age is changing.
How a change in FRA will affect your ability to increase Social Security checks
The full retirement age was previously 65, but changes to social security in 1983 resulted in a lower full retirement age for anyone born after 1937. The change in FRA was introduced gradually.
- People born in 1955 have an ARF of 66 and two months. This is the group of seniors who turned 66 in 2021.
- Those born in 1956 will have an FRA of 66 and four months. This is the group that will turn 66 next year.
- FRA gradually decreases by two months, until people born in 1960 or later have an FRA of 67.
Due to the incremental changes, retirees who turn 66 next year will have to wait two more months to get their standard benefit, compared to people who hit that milestone this year. And as the FRA gradually changes later each year, future retirees will have to wait even longer to avoid early reporting penalties. And, all these seniors who will arrive at FRA in 2022 or beyond too are less likely to earn deferred retirement credits than their predecessors.
Here’s how it works in practice:
- Older Americans who turn 66 in 2021 have the opportunity to earn 46 months of credits, which could increase their Social Security benefits by up to 30.6%.
- Those who will not turn 66 before 2022 will only have the opportunity to earn 44 months of these credits. With credits equivalent to two-thirds of 1% per month, they can increase their benefits by a maximum of 29.3%. While 1.3% doesn’t seem to make a big difference, it can add up over time as you retire for 20 or 30 years.
- Those who turn 62 next year and have an FRA of 67 only have the chance to earn three years of deferred retirement credits. This results in a maximum increase of 24%. This is a huge difference from the former retirees.
Future retirees will also have to either accept more penalties for early reporting, or forgo several months of checks to get their standard benefit while waiting up to 66 and four months or more, depending on their year of birth.
Those who hit FRA next year – and all future retirees beyond them – should anticipate that they will have to wait longer or get less money. They should also be aware that they will not be able to increase Social Security benefits as much as their older counterparts could.
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