Theresa Becker, CFP® Vice President & Financial Planning Officer
What is Full Retirement Age (FRA)?
In the US, the Full Retirement Age or “normal retirement age”, generally refers to the age you must reach to be eligible to receive full benefits from Social Security. Depending on when you were born, this age can vary.[1] Upon registering with my Social Security, you will be able to print your statement of estimated benefits, which will display your estimated benefits at age 62, at your full retirement age (FRA), and at age 70. You must start taking benefits at age 70. As mentioned, full retirement age can vary based on when you were born but it is expected to increase by two months each year until it hits 67. The absolute earliest you can claim Social Security retirement benefits is age 62. The FRA for those who will turn 62 in 2019 will increase to 66, and those born in 1960 or later, the FRA will be 67.
FRA makes a difference in determining your benefits because they will be reduced for any amount of time you take before FRA and increased for the amount of time you take after FRA. Those with longevity in their families and enough other income streams or assets to draw on in retirement, may consider postponing Social Security until age 70 because the benefit grows at 8% of the FRA benefit per year between FRA and age 70.
What if I keep working when I’m eligible for benefits?
Another reason to delay taking Social Security once eligible is if you are still working. If you have not reached your full retirement age and start taking Social Security, you can earn up to $21,240 (in 2023) without affecting any Social Security benefit you are receiving. After that, $1 will be taken from your payment for every $2 in earnings above the limit. If you are working during the year you reach your FRA, the reduction is only $1 for every $3 in earnings above the limit. After FRA, there is no reduction in your benefits. In fact, since you are still working, your benefit will most likely increase, since your current salary will take the place of an earlier year (where you were earning less) in the benefit calculation.
How much will I receive when I start collecting?
For 2023, the average monthly social security payment will be $1,827. To determine if you are considered average, below average or above average depends on your earnings history. If you have been earning at or above the values in the table below (the maximum earnings that Social Security taxes you on), you will receive more toward the maximum benefit available. If that is the case and you reach your FRA in 2023, you could be receiving $3,627 per month. If you turn 66 and 4 months this year and you delay your benefit until the age of 70, you will earn 8% of that benefit per year to get a monthly benefit of $4,981. There are also cost of living adjustments (COLAs) each year which correspond to the Consumer Price Index. The COLA for 2022 was 5.9% and the COLA for 2023 is 8.7%.
Source: ssa.gov website (https://www.ssa.gov/oact/cola/cbb.html)
Is Social Security going away in 2037?
The simple answer is no - not in the next several decades anyway. There are many levers the government can use to keep Social Security funded for future retirees such as raising the FRA for younger workers and/or raising the contribution base on which social security tax is applied (see table above). Keep in mind however, that Social Security benefits are not intended to replace all of your working income, nor are they intended to cover all of your retirement expenses. Therefore, if you are still working and do not have a guaranteed pension, be sure to contribute to your personal retirement savings plan or one offered by your employer.
Where do I get more information?
To fully understand your benefits and how to navigate social security and prepare for a financially sound retirement, it is important to discuss these areas and more with your financial advisor. Our team of experts can walk you through the finer details of your unique situation and set you on the right path. The https://www.ssa.gov website is also a good resource as it is chock full of information and very easy to navigate
[1] Source: Investopedia
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