I write a column similar to this one every January. But I don’t mind plagiarizing myself, as the column contains a very important message for people planning to retire in 2019.
January is a critical month for the hundreds of thousands of potential Social Security beneficiaries who are reaching 66, their so-called full retirement age, in 2019. 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: This technique should not be employed by folks who plan to use the soon-to-disappear maximizing strategy called “file and restrict” (still available to people turning 66 in 2019), because that procedure requires you to wait until age 66 or later before filing for benefits. File and restrict has been discussed countless times in this column and won’t be discussed today, other than to point out that it involves filing for benefits on a spouse’s account and delaying your own retirement benefits — usually, until age 70.
Even if you are not using the file and restrict strategy, you may want to delay filing for your own Social Security benefits until 70 in order to get a 32 percent delayed-retirement bonus. In this case, you, too, should forgo the procedure discussed in this column.
But if you are not interested in either of those strategies — and plan to start your benefits at 66 in 2019 — then, as I said, you may want to consider filing for benefits in January.
This early filing timeframe results from some quirky and complicated features of Social Security’s earnings penalty provisions. Those provisions generally keep seniors who are still working off of 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 still working full-time, you are not eligible for Social Security. Specifically, the rules require that the SSA deduct $1 from any retirement benefits you might be due for every $2 you earn over $17,640 in 2019.
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, no matter how much money you are making.
Let’s follow an example. Let’s say Ed was born in July 1953, which means he’ll reach his full retirement age of 66 in July 2019. And let’s further say that 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. At that magical point, the earnings penalty rules no longer apply, and he can get his Social Security. Prior to that, he’s making way more than the $17,640 income threshold.
But here is why Ed should consider 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 $46,920 between January and the month you reach your full retirement age and still get Social Security benefits. Even if you earn more than $46,920, for every $3 you exceed that threshold, you lose only $1 from your benefits.
Ed is going to make $40,000 between January and June (i.e., before he reaches the magic age of 66). And that’s under the $46,920 threshold for 2019, which means Ed is due benefits beginning in January. He does not have to wait until July to apply for his Social Security checks.
There is a bit of a catch: By starting his benefits in January, Ed will be accepting a slightly reduced amount. (Benefits are reduced by roughly 0.5 percent for each month they are taken before full retirement age.)
If Ed’s Social Security benefit at full retirement age is $2,500 per month, let’s look at his options.
Ed’s first option is to wait until July to start his Social Security benefits. He’ll get $2,500 per month for six months — $15,000 for the year 2019.
Ed’s second option is to file for Social Security in January. Starting his benefits slightly early, his monthly rate is reduced to about $2,400. That comes out to $28,800 in total benefits for the year 2019. The downside to Option 2 is his ongoing monthly benefit rate will be $100 less than what he would have been getting in Option 1. But because he’d be getting about $13,800 less in 2019 benefits in Option 1, it would take Ed a long time to make up that loss with his extra $100 per month in ongoing benefits. If I were Ed, I’d choose the second option.
Even if Ed would have made more than the $46,920 income threshold between January and June, for every $3 he exceeds that amount, he will only lose $1 in Social Security benefits. So, he probably still comes out ahead by filing in January.
Here is a quick example using that scenario: Let’s say Ed will make $60,000 between January and June. That’s $13,080 over the $46,920 limit. One-third of that excess, or about $4,360, must be deducted from his 2019 benefits. But he would still get $24,400 in benefits for the year. That’s way better than the $15,000 he would be due by waiting until July to file for his Social Security.
I know these rules are complicated and the math in the examples above might be difficult to follow. But my overall message is easy to follow: If you’re reaching age 66 in 2019, talk to a Social Security representative sometime this month to find out if it’s to your advantage to file for those benefits in January.
One word of caution: Many readers in the past told me that when they tried to file in January, Social Security Administration clerks told them they could not do so. Sadly, far too many SSA agents are unfamiliar with how these rules work. If you run into the same problem, demand to speak to a supervisor.
