The next year is set to bring a lot of changes to Social Security, including the largest cost-of-living adjustment we've seen in decades. But there's another key Social Security element that, after six years of increasing, is finally going to remain the same in 2023 and for the foreseeable future.
Below, we'll take a closer look at what it is, what it means for your Social Security checks, and how to leverage this information for your benefit.
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We're finally through the transition
You probably know that you become eligible for Social Security once you turn 62, but the government doesn't actually consider this your full retirement age (FRA), even if you're no longer working. FRA -- the age at which you become eligible for your full benefit based on your work history -- used to be 65 when Social Security first started. But as people began to live longer, concerns came up about the long-term stability of the program.
In 1983, the Social Security Administration decided to amend the program to combat this by increasing the FRA from 65 to 67 over a 22-year period. Workers could still claim benefits under their FRA, but they'd get less money per check by doing so.
Between the years 2000 and 2005, FRA rose by two months each year. Those born in 1937 or earlier still had an FRA of 65. But those born in 1938, who turned 62 in 2000, had an FRA of 65 and two months, those born in 1939 had an FRA of 65 and four months, and so on, until we reached an FRA of 66 for those born in 1943.
Then, there was an 11-year hiatus that kept the FRA at 66 for all adults born between 1943 and 1954. So between 2005 and 2016, all seniors who first became eligible for Social Security retirement benefits had the same FRA. But we were only halfway there.
FRA began climbing once more in 2016, again jumping up by two months at a time, until it reached 67 in 2022. This applies to all workers born in 1960 or later. There's been no more amendments that call for increasing the FRA thus far, so we can expect it to remain at 67 for the foreseeable future.
What does this mean for you?
Knowing your FRA is important because it determines when you qualify for the benefit you've earned based on your work history. Claiming under your FRA shrinks your checks by up to 25% if your FRA is 66 or 30% if your FRA is 67. To put that in perspective, if you qualify for the $1,673 monthly Social Security benefit at your FRA of 67, you only get $1,171 per month if you claim as soon as you become eligible at 62.
Delaying benefits slowly increases your checks over time until you reach your maximum benefit at 70. Again, the Social Security Administration uses your FRA to determine this. If your FRA is 67, you get 124% of your full benefit per check by delaying until 70 while those with an FRA of 66 get 132% of your full benefit per check if your FRA is 66.
This doesn't mean delaying benefits is always better, though. If you need Social Security to help you pay your bills, it's wiser to sign up early than to take on debt or fall behind on your bills. And if you don't expect to live much past 70, you'll likely get more money overall by signing up early rather than delaying Social Security.
It's an individual decision, but understanding how your claiming age affects your benefits can help you make the best possible choice. You can create a my Social Security account if you want a precise estimate of how large your checks will be at various starting ages based on your work history to date. There's a calculator that can show you exactly how much you'll get if you sign up at each month between 62 and 70.
Choose a few the ages you're considering and multiply each of their monthly benefits by 12 to get your estimated annual benefits. Then, multiply these by the number of years you expect to claim benefits. For example, the $1,673 average monthly benefit claimed for 20 years would give you a lifetime benefit of $401,520.
Use this information to decide when you'd like to sign up for Social Security. But don't be afraid to alter this decision in the future if necessary. The program might change further and your plans for retirement might change as well, so you have to be flexible.