Full retirement age, or FRA, is when you become eligible for 100 percent of the benefit amount calculated from your lifetime earnings. (FRA is currently 66 years and 2 months and is gradually rising over the next several years to 67.) If you file before that, Social Security lowers the percentage of the benefit amount.
During this “early retirement” period you also forfeit benefits if you continue to work and your earnings exceed an annual limit. In 2021 the cap is $18,960, and you lose $1 in benefits for every $2 in earnings above it. When you reach FRA, Social Security will begin making up for the withholding by giving you credit for the months when you lost benefits.
Suppose you turn 62 in 2021 and claim Social Security. Your monthly benefit is $1,200 and you earn $25,000 annually through a part-time job. For the year, Social Security withholds $3,040 from your payments (half of the $6,080 by which you topped the earnings limit). That works out to 2.5 months of benefits lost, which Social Security rounds up to three.
Now suppose you continue to lose three months of benefits a year until you reach full retirement age — that's 66 years and 10 months for people like you who were born in 1959. That works out to an estimated 15 months of withheld benefits. When you hit FRA, Social Security will reset your benefit as if you’d filed 43 months early rather than 58. (The difference, if you’re keeping score, is that you get 70.8 percent of your “full” benefit at 56 months early, 77.1 percent at 43 months.)
The extra years you worked will further boost your benefit payment if they rank among your 35 highest-earning years. This will increase your lifetime average for monthly income, the figure that is the basis of your benefit calculation, in turn raising your benefit amount.
Keep in mind
- The earnings limit only applies if you are under full retirement age. Social Security does not withhold any money from your benefits if you keep working after FRA.
- You won’t see the boost from that benefit reset immediately after your FRA birthday. Social Security will start the higher monthly payment the following January.
Updated December 23, 2020