Full retirement age in 2022? Consider applying for benefits this month
I write a similar column every January. But I don’t mind plagiarizing myself as it carries a very important message for people planning to retire in 2022.
January is a critical month for the hundreds of thousands of potential Social Security beneficiaries who will reach 66 and 4 months in 2022, their so-called full retirement age. The important message: They should all at least consider the option of applying for this month’s benefit, even though they may not reach retirement age until later in the year.
Keep in mind that if you want to delay applying for your Social Security benefits until age 70 in order to get the “deferred retirement credit” of nearly 32% added to your monthly benefits, then you must forgo the procedure discussed in this column.
But if you’re not interested in that strategy and plan to start taking benefits with your FRA in 2022, then, as I said, consider applying for benefits in January.
The reason for this early filing timeframe has to do with some quirky and complicated features of Social Security’s income penalties provisions. Those provisions generally keep seniors who are still working from Social Security until they reach that magical full retirement age.
The law essentially says that if you are over age 62, but under your full retirement age and still working full-time, you are not eligible for Social Security. Specifically, the rules require that the SSA deduct $1 from any retirement benefits you may owe for every $2 you earn over $19,560 in 2022.
However, the rules say that once you reach full retirement age you will receive full Social Security benefits even if you are still working and however much money you make.
Let’s follow an example. Let’s say Ed was born in March 1956, which means he will reach his full retirement age of 66 and 4 months in July 2022. And let’s go on to say that Ed generally earns about $80,000 a year and plans to continue working indefinitely. Based on the wage penalty rules I briefly outlined above, Ed estimates that he will have to wait until July (his full retirement age) to collect his Social Security benefits. As I said, at that magical point, the wage penalty rules no longer apply and he can get his Social Security. And for that, he earns much more than the income threshold of $19,560.
But this is why Ed should be filing for Social Security in January. Congress has introduced a lenient income threshold for the year you reach full retirement age. Specifically, it says that between January and the month you reach full retirement age, you can earn up to $51,960 and still receive Social Security benefits. And even if you make more than $51,960, you’ll only lose $1 of your benefits for every $3 you earn over that threshold.
Ed is going to make $40,000 between January and June (ie before he reaches the magical age of 66 and 4 months). And that’s below the $51,960 threshold for 2022, meaning Ed will start receiving benefits from January. He does NOT have to wait until July to apply for his Social Security checks.
But there is a bit of a snag. By starting his benefit in January, Ed accepts a slightly lower amount. (The benefits are reduced by about half of 1% for each month they are withdrawn before full retirement age.)
If Ed’s Social Security benefit at full retirement age is $2,500 per month, let’s take a look at his options.
Ed’s first option is to wait until July to start his Social Security payments. He will get $2,500 a month for six months or $15,000 for the year 2022.
Ed’s second option is to file for Social Security in January. He starts his benefits a little earlier and his monthly rate is reduced to about $2,400. That equates to $28,800 in total benefits for the year 2022. The downside to option two is that his ongoing monthly benefit will be $100 less than what he would have gotten with option one. But since Option One would cut him about $13,800 in benefits in 2022, it would take a long time for Ed to make up for that loss with his extra $100 a month in ongoing benefits.
Even if Ed were to earn more than the $51,960 income threshold between January and June, he would lose only one dollar in Social Security benefits for every three dollars he earns above that amount. So he could still come forward by filing in January.
Here’s a quick example using that scenario. Let’s say Ed will make $60,000 between January and June. That’s $8,040 above the $51,960 limit. And one-third of that deductible, or $2,680, is to be deducted from his 2022 benefits. But he would still get $26,120 in benefits for the year. That’s still much better than the $15,000 he’d have to pay if he waited until July to apply for his Social Security.
Keep in mind that this strategy generally only works for those who reach full retirement age in early to mid-2022 and whose earnings prior to reaching FRA are at least close to the $51,960 cap. In other words, if you’re going to make a lot more than $51,960 this year, or if you reach full retirement age later in the year, you’ll probably have to wait for your FRA to file for your Social Security benefits.
I know these rules are complicated and the math in the examples above is hard to follow. But my general message is easy to follow: If you reach age 66 and 4 months in early to mid-2022, you may want to talk to a Social Security representative sometime this month to find out if it would be to your advantage to have a apply for your benefits from January.
A word of warning. Many readers have told me in the past that when they tried to file a file in January, representatives of the Social Security Administration told them they couldn’t. Unfortunately, far too many SSA agents are not familiar with how these rules work. If you encounter the same problem, ask to speak to a supervisor.
One final note. I know from experience that many people are simply bound and determined to get their full benefits by waiting until they reach FRA to start their benefits. If you fall into that category, that’s fine. Frankly, it makes your Social Security experience easier.
If you have a Social Security question, Tom Margenau has a book with all the answers. It’s called ‘Social Security — Simple and Smart’. The book can be found at www.creators. com/books. Or search for it on Amazon or other bookstores. Visit the Creators Syndicate website at www.creators.com to learn more about Tom Margenau, read past columns and see features from other Creators Syndicate writers and cartoonists.