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Often the Best Month to File for Social Security
I write a column similar to this one every January. But I don’t mind plagiarizing
myself because it contains a very important message for people planning to retire
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 2014. The important message: Most 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. But please note: This procedure
should not be employed by folks planning on using one of the Social Security
maximizing strategies I’ve discussed so often in this column (e.g., “file
and suspend” or “restricted application”) because those provisions
generally require you to wait until age 66 before filing for benefits.
The reason for this early filing timeframe for everyone else 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 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 are 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 $15,480 in 2014.
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 July 1948, which
means he’ll reach his full retirement age of 66 in July 2014. 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 $15,480 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 $41,400 between
January and the month you reach your full retirement age and still get Social
Security benefits. And even if you earn more than $41,400, you lose only $1 from
your benefits for every $3 you exceed that threshold.
Ed is going to make $40,000 between January and June (i.e., before he reaches
the magic age of 66). And that’s just under the $41,400 threshold for 2014,
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 roughly one-half of one percent
for each month they are taken before full retirement age.)
If Ed’s Social Security benefit at full retirement age is $2,200 per month,
let’s look at his options.
Ed’s first option is to wait until July (his full retirement age) to start
his Social Security benefits. He’ll get $2,200 per month for six months
or $13,200 for the year 2014.
Ed’s second option is to file for Social Security in January. Starting
his benefits slightly early, his monthly rate is reduced to about $2,130. That
comes out to $25,560 in total benefits for the year 2014. The downside to option
two is his ongoing monthly benefit rate will be $2,130, $70 less than what he
would have been getting in option one. But because he’d be getting about
$12,360 less in total 2014 benefits in option one, it would take Ed a long time
to make up that loss with his extra $70 per month in ongoing benefits. If I were
Ed, I’d choose the second option.
Even if Ed was going to make more than the $41,400 income threshold between January
and June, he only loses one dollar in Social Security benefits for each three
dollars he exceeds that amount. So he probably still comes out ahead by filing
Here is a quick example using that scenario. Let’s say Ed will make $50,000
between January and June. That’s $8,600 over the $41,400 limit. And one
third of that excess, or about $2,866 must be deducted from his 2014 benefits.
But he would still get $22,694 in benefits for the year. That’s still way
better than the $13,200 he would be due by waiting until July to file for his
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 2014, talk to a Social Security representative sometime this
month to find out if it’s to your advantage to file for those benefits
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