One of the best things about Social Security is that you have a choice about when you apply for benefits. You are entitled to your full monthly benefit at full retirement age, or FRA. This age starts at 66, 67, or somewhere in between, depending on your year of birth.
However, you are allowed to apply for social security outside of FRA. The earliest age you can enroll is 62, but filing with the FRA will result in reduced benefits.
On the other hand, if you delay your filing beyond FRA, you will increase your monthly benefit by 8% for every 12 months you wait to enroll. And that incentive lasts until age 70 (meaning you can’t increase your benefits after age 70, but any boost you lock in will be yours permanently).
In the meantime, it is possible to work and collect social security benefits at the same time. Once you reach FRA, your earnings will not affect your benefits. But if you work and receive benefits before reaching FRA, you will be subject to an annual earnings test limit.
There is a new proposal on the table, however, which seeks to increase the income test limit. And if that passes, seniors on Social Security could have a lot more leeway — and potentially avoid losing benefits they’d rather collect.
Could the income test limit be increased?
This year, seniors on Social Security can earn up to $1,630 a month, or $19,560 a year, before their benefits are affected. If your income exceeds the limit this year, you will have $1 of Social Security withheld per $2 of income.
Recently, however, Rep. Bill Posey introduced the Senior Citizens Inflation Relief Act, and it calls for an immediate increase in the earnings test limit for 2022 and 2023. If passed, the limit current earnings test would go from $1,630 per month to $2,046.67 per month or $24,560 per year. (For clarification, note that the income test limit is higher for seniors reaching FRA this year.)
The logic behind this change would be to give older people more options for generating income at a time of skyrocketing inflation. As things stand, older people routinely struggle to meet the cost of living, even during more subdued periods of inflation. But right now, spending is exploding for both workers and seniors. And the idea behind Rep. Posey’s proposal is to provide temporary relief so seniors don’t have to resort to costly debt just to make ends meet.
A real lifesaver
Some seniors are surprised to learn that their Social Security benefits are affected by their income if they filed before reaching FRA. Now the good news is that benefits withheld under the means test are not lost – they are simply refunded later, once the FRA takes effect. But for seniors who need that money immediately, it’s not so helpful.
Raising the income test limit could bring much-needed relief to many older people today. And so older people should hope that Posey’s proposal gains enough traction to become a reality.