Why “Full Retirement Age” is so Important for Social Security Benefits
“Why “Full Retirement Age” is so Important for Social Security Benefits ” by Tom Hager, CPA, CGMA, NSSA
“Full retirement age” means the age at which you become eligible to collect 100 percent of your monthly Social Security benefit. Below is a chart detailing at what age this occurs, based on the year of your birth:
Year of Birth Full Retirement Age
1937 or earlier 65
1938 65 and 2 months
1939 65 and 4 months
1940 65 and 6 months
1941 65 and 8 months
1942 65 and 10 months
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 and later 67
*If you were born on Jan. 1 of any year you should refer to the previous year. In these instances, we figure your benefit (and your full retirement age) as if your birthday occurred the previous month.
What’s so important about reaching your “full retirement age” before starting your Social Security benefits?
Below are the options it affords you:
- You’ll collect 100 percent or more of your monthly benefit.
- Your annual earnings limitation goes away. Prior to reaching “full retirement age,” if you receive benefits while continuing to work Social Security will withhold $1 for every $2 over the annual earnings limit of $16,920 for 2017. Once you reach “full retirement age,” this limitation no longer applies.
- You can file a “restricted application” for spousal benefits if you were born before Jan. 1, 1954. This allows you to collect spousal benefits only and let your worker benefit earn delayed retirement credits.
- You can voluntarily suspend your benefits to earn delayed retirement credits. Keep in mind though, if you voluntarily suspend your benefits all benefits being paid on your work record also will be suspended. Usually this applies to your current spouse and children.
- You’ll start to accumulate delayed retirement credits. This can increase your monthly benefit by 8 percent per year until you reach age 70. If your “full retirement age” is 66, this means that your monthly benefit will be 32 percent higher than your primary insurance amount. This is important because when you pass away, your surviving spouse will receive the same higher benefit.
- You can receive “retroactive” benefits for up to six months when you file an initial claim. Practically speaking, this pushes your retirement filing date back six months. This also creates a permanently lower monthly retirement benefit and lower survivor benefit. What you really are doing is trading six months of up-front benefits in a lump sum for lower monthly benefits over your lifetime.
Key Points to Remember
It’s important to keep in mind that there is NO ADVANTAGE to deferring spousal benefits, ex-spousal benefits or survivor benefits past “full retirement age,” as they will not get any higher.
Waiting until your “full retirement age” to collect benefits has its advantages, but you need to make sure that your primary Social Security benefit strategy works in conjunction with your overall financial retirement goals. Most people do not realize that a couple, living to life expectancy, will receive more than $1 mililon in Social Security benefits. That’s a big number.
I tell my clients that if you take the wrong benefit, at the wrong time, it’s always smaller and it’s FOREVER. Take the time to make a plan – you could increase your overall benefit amount substantially.
Let me know if I can help.