This Proposal Could Help Social Security Beneficiaries Avoid Losing Benefits | personal finance

(Maurie Backman)

One of the best things about Social Security is that you can choose when to claim benefits. You are entitled to your full monthly benefit at full retirement age, or FRA. That age starts at 66, 67, or somewhere in between, depending on your year of birth.

However, you can apply for Social Security outside of FRA. The earliest age you can enroll is 62, but filing before the FRA will result in a reduced benefit.

On the other hand, if you delay filing beyond the FRA, your monthly benefit will increase by 8% for each 12-month period you wait to enroll. And that incentive lasts until age 70 (meaning you can no longer increase your benefits past age 70, but any increase you secure will be yours to enjoy permanently).

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Meanwhile, it is possible to work and collect Social Security benefits at the same time. Once you get to FRA, your earnings won’t affect your benefits at all. But if you are working and receiving benefits before you come to FRA, you will be subject to an annual earnings test limit.

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However, there is a new proposal on the table that seeks to increase the limit of the income test. And if it passes, seniors on Social Security could have a lot more wiggle room, potentially avoiding losing benefits they’d rather collect.

Could you increase the income test limit?

This year, seniors with Social Security can earn up to $1,630 a month, or $19,560 a year, before their benefits are affected. If your earnings are over the limit this year, $1 of Social Security will be withheld for every $2 of earnings.

Recently, however, Rep. Bill Posey introduced the Senior Citizens Inflation Relief Act, calling for an immediate increase in the income test limit for 2022 and 2023. If passed, the current income test limit would increase from $1,630 per month to $2,046.67 per month, or $24,560 per year. (For clarification, it’s worth noting that the income test limit is higher for seniors who reach the FRA this year.)

The logic behind this change would be to give older people more options to generate income at a time when inflation is soaring. As it is, seniors routinely struggle to keep up with the costs of living, even during the mildest periods of inflation. But right now, expenses are through the roof 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.

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Some seniors are surprised to learn that their Social Security benefits are affected by their earnings if they applied before coming to the FRA. Now, the good news is that benefits withheld under the earnings test are not forfeited, they are simply repaid later, once the FRA takes effect. But for seniors who need that money right away, that’s not as helpful.

Raising the income test threshold could bring much-needed relief to many seniors today. So seniors should hope that Posey’s proposal gains enough traction to become a reality.

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