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 2025.
January is a critical month for the hundreds of thousands of potential Social Security beneficiaries who are reaching their full retirement age in 2025. 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 percent 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 full retirement age to file for benefits, then forget this column’s message.
But if you are open to the possibility of increasing your benefit payout for 2025, you may want to consider filing for benefits in January.
The reason for this early filing timeframe 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 Social Security Administration deduct $1 from any retirement benefits you might be due for every $2 you earn over $23,400 in 2025.
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 December 1958, which means he'll reach his full retirement age of 66 and 8 months in July 2025. And let’s say Ed generally makes about $80,000 per year and that 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 $23,400 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 $62,160 between January and the month you reach your full retirement age and still get Social Security benefits. And even if you earn more than $62,160, you lose only $1 from your benefits for every $3 you exceed that threshold.
Let’s say Ed is going to make about $41,000 between January and June (i.e., before he reaches the magic age of 66 and 8 months in July). That’s under the $62,160 threshold for 2025, which means Ed is due benefits beginning in January. He does NOT have to wait until July to apply for his Social Security checks.
But 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 1 percent for each month they are taken before full retirement age.)
If Ed’s Social Security benefit at full retirement age is $3,000 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 $3,000 per month for six months, or $18,000 for the year 2025.
Ed’s second option is to file for Social Security in January. Starting his benefits slightly early, his monthly rate is reduced to about $2,900. That comes out to $34,800 in total benefits for the year 2025. The downside to option two is his ongoing monthly benefit rate will be $100 less than what he would have been getting in option one. But because he'd be getting about $16,800 less in 2025 benefits if he chose option one, it would take Ed a long time to make up that loss with his extra $100 per month in ongoing benefits.
Even if Ed were going to make more than the $62,160 income threshold between January and June, he would only lose $1 in Social Security benefits for each $3 he exceeded that amount. So he still might come out ahead by filing in January.
Please note that this strategy generally only works for those who turn full retirement age in early to mid 2025 and whose earnings prior to reaching full retirement age are at least close to the $62,160 limit. In other words, if you will make a lot more than $62,160 before your full retirement age, or if you reach your full retirement age later in the year, you should probably just wait until your full retirement age month to file for your Social Security benefits.
Here is one other consideration. If you are waiting until your full retirement age (or even later) to start benefits in order to give your spouse a higher widows or widowers benefit when you die, then forget this procedure. That’s because any reduction you take in your retirement rate will carry over to your spouse’s eventual survivors benefit.
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 your full retirement age in early to mid 2025, you might want to talk to a Social Security representative sometime this month to find out if it’s to your advantage to file for your benefits to start in January.
A word of caution: Many readers in the past told me that when they tried to file in January, Social Security Administration representatives 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, ask to speak to a supervisor.
