Social Security is one of the most important programs for Americans, providing what can add up to hundreds of thousands of dollars in benefits during your retired years. More than 60 million people get Social Security benefits right now, and tens of millions more can expect to receive payments from the program when their time comes.
Despite the importance of Social Security, a lot of people don't understand exactly how it works. In many ways, lawmakers have added to the difficulty by creating strange rules that just serve to muddy the waters without necessarily making much sense. One of those rules involves how the Social Security Administration treats New Year's Day -- and it can have a dramatic effect on what you receive in benefits.
What you'd expect from Social Security on holidays
To be clear, Social Security accounts for many different holidays in similar ways. For instance, retirement benefits are paid to recipients on the second, third, or fourth Wednesday of each month. That timing typically avoids most holidays, but in years where date-specific holidays like Veterans' Day land on a Wednesday, payments are typically moved forward a day to Tuesday.
Similarly, another related program has payments that always have to deal with New Year's Day. Those who receive Supplemental Security Income, which is a need-based supplement to regular Social Security, typically get their payments on the first of the month. However, when the first is a holiday or weekend, payments get moved earlier to the nearest available non-holiday weekday. Most years, that's Dec. 31, but there've been cases in which the payment has moved two or more days forward depending on how the calendar works out.
The bizarre way Jan. 1 birthdays get treated under Social Security
The rules above only serve to get you a payment a day or two earlier than you'd otherwise receive it, which isn't usually a huge deal to most people. However, there's one element of the New Year's Day rule that can have a huge and permanent impact on what you get from Social Security.
The Social Security rules state that if your birthday is on Jan. 1, then you'll be treated as though your birthday had taken place in the previous year. So for instance, if you were born on Jan. 1, 1955, then the SSA will treat you the same way as someone who was born on Dec. 31, 1954. However, if you were born on the next day, Jan. 2, then you'll get the same treatment as anyone else born in 1955.
Why the Jan. 1 rule matters
At first glance, it might not seem like that single day is all that big a deal. After all, the same thing is true for most other calendar-based situations when you look at the difference between how someone with a Dec. 31 birthday gets treated compared to someone with a Jan. 1 birthday. But because of the strangeness of the rule, it often goes unnoticed -- and it's easy for Social Security recipients to miss the impact.
One of the impacts is relatively minor. Those with Jan. 1 birthdays are treated as if they were a month older than they really are, and that means that their monthly payments will generally be higher than what someone with a Jan. 2 birthday would get. For every month early that you claim benefits, you lose between 5/12 and 5/9 of a percent of your full retirement age monthly payment -- so if you're treated as being a month older, you avoid losing that incremental amount of benefits. Similarly, beyond retirement age, retirement benefits rise by two-thirds of a percent per month, so you can potentially get an extra two-thirds of a percent bump in your payment.
The more important impact of the Jan. 1 rule comes from how full retirement age is calculated. The SSA says that those born between 1943 and 1954 have a full retirement age of 66, while for those born in 1955, 66 and two months is the corresponding full retirement age. But again, because those born on Jan. 1, 1955 are treated as though they were born in 1954, they'll have the 66 full retirement age -- and thereby avoid two more months of downward impact on the amount they receive each month.
Celebrate your New Year's birthday
Obviously, there's nothing you can do about when you were born. However, the key is understanding that a Jan. 1 birthday gets treated differently for Social Security than any other day of the year. If you're aware of the situation, you can make sure you get the benefits you deserve. That's a birthday present that can keep you paying you the rest of your life.