Full retirement age, or FRA, is when you become eligible for 100 percent of the benefit amount calculated from your lifetime earnings. (FRA is 66 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 2019 the cap is $17,640, 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 claim Social Security when you turn 62. Your monthly benefit is $1,200 and you earn $25,000 annually through a part-time job. For the year, Social Security withholds $3,680 from your payments (half of the $7,360 by which you topped the earnings limit). That works out to 3.1 months of benefits lost, which Social Security rounds up to four.
If you continue to lose four months of benefits a year until you reach full retirement age, that’s 16 months of withheld benefits. When you turn 66, Social Security will reset your benefit as if you’d filed 32 months early rather than 48. (The difference, if you’re keeping score, is that you get 75 percent of your “full” benefit at 48 months early, 82.2 percent at 32 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 17, 2018