ArcaMax

Turning Full Retirement Age in 2023? Consider Filing for Benefits This Month

I write a column like this one every January, but I don't mind plagiarizing myself because it contains a very important message for people planning to retire in 2023.

January is a critical month for the hundreds of thousands of potential Social Security beneficiaries who are reaching 66 and 6 months, their so-called full retirement age, in 2023. The important message: all of them should at least consider the possibility of filing for their benefits this month, even though they may not be reaching their retirement age until later in the year.

Please note that if you want to delay filing for your Social Security benefits until 70 to get the "delayed retirement credit" of about 30% added to your monthly benefits, then you should forgo the procedure discussed in this column. Also, if you're one of those people who absolutely insists on waiting until your FRA to file for benefits, then forget this column's message.

But if you are open to the possibility of increasing your benefit payout for 2023, you may want to consider filing for benefits in January.

The reason for this early filing time frame has to do with some quirky and complicated features of Social Security's earnings penalty provisions. Those provisions generally keep seniors who are still working off Social Security's rolls until they reach that magic full retirement age.

The law essentially says if you are over 62 but under your full retirement age and are still working full time, you are not eligible for Social Security. Specifically, the rules require that the Social Security Administration deduct $1 from any retirement benefits you might be due for every $2 you earn over $21,240 in 2023.

However, the rules say that once you reach your full retirement age, you are due full Social Security benefits even if you are still working and no matter how much money you are making.

Let's follow an example. Let's say Ed was born in January 1957, which means he'll reach his full retirement age of 66 and 6 months in July 2023. And let's further say Ed generally makes about $80,000 per year and he plans to continue working indefinitely. Based on the earnings penalty rules I briefly outlined above, Ed figures he must wait until July (his full retirement age) to begin collecting his Social Security benefits. As I said, at that magical point the earnings penalty rules no longer apply, and he can get his Social Security. And prior to that, he's making way more than the $21,240 income threshold.

But here is why Ed should check into applying for Social Security in January. Congress set up a more lenient earnings threshold for the year you reach your full retirement age. Specifically, it says you can earn up to $56,520 between January and the month you reach your full retirement age and still get Social Security benefits. And even if you earn more than $56,520, you lose only $1 from your benefits for every $3 you exceed that threshold.

...continued