Many seniors are interested in earning the maximum possible amount of Social Security income. That makes sense, since these benefits are guaranteed to last during your later years.
Unfortunately, future retirees will have fewer chances to increase their monthly benefits than those who came before them. Here's why.
Why future retirees will miss out on 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.
See, older Americans are allowed to begin their benefits when they turn 62. But, each person eligible for Social Security has a full retirement age (FRA). That's when they must claim their benefit to get their primary insurance amount (their standard benefit based on average wages). Older Americans are also allowed to delay filing for benefits past their FRA.
Retirees who file for benefits ahead of FRA get a reduced monthly check because of something called "early filing penalties." Those who delay raise their monthly income by earning "delayed retirement credits" until age 70.
Avoiding early filing penalties and earning delayed retirement credits are some options seniors have for increasing their monthly benefit amount once they're at the end of their careers.
Unfortunately, there will be fewer opportunities next year for seniors to earn delayed retirement credits. And, future retirees are at greater risk of getting hit with early filing penalties next year and beyond.
That's because full retirement age is changing.
How a change to FRA will affect your ability to increase Social Security checks
Full retirement age used to be 65, but amendments to Social Security in 1983 resulted in the full retirement age being pushed later for anyone born after 1937. The change in FRA has been phased in.
- Those born in 1955 have an FRA of 66 and two months. This was 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 who will turn 66 next year.
- FRA is gradually moving back by two months, until those born in 1960 or later will have an FRA of 67.
Because of the phased-in changes, retirees turning 66 next year must wait an extra two months to get their standard benefit, compared with people who reached this milestone this year. And since FRA is gradually moving later each year, future retirees will have to wait even longer to avoid early filing penalties. And, all of these seniors hitting FRA in 2022 or beyond will also have fewer chances to earn delayed retirement credits than their predecessors.
Here's how this works in practice:
- Older Americans turning 66 in 2021 have the chance to earn 46 months worth of credits, which could increase their Social Security benefits by as much as 30.6%.
- Those who don't turn 66 until 2022 will only have the opportunity to earn 44 months worth of these credits. With credits equaling two-thirds of 1% per month, the most they can increase their benefits is by 29.3%. While 1.3% may not seem like it makes a whole lot of difference, it can add up over time when you're taking about a retirement lasting 20 or 30 years.
- Those turning 62 next year who have an FRA of 67 have the chance to earn just three years of delayed retirement credits. This results in a maximum 24% increase. That's a huge difference compared to past retirees.
Future retirees will also have to either accept more early filing penalties or give up several months of checks to get their standard benefit by waiting until 66 and four months or longer, depending on their birth year.
Those hitting FRA next year -- and all future retirees beyond them -- should plan for the fact they'll have to wait longer or get less money. They also must be aware that they won't be able to increase Social Security benefits as much as their older counterparts could.