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Can someone explain this in layman term. MY FRA is 67, currently working and likely apply for SS at 65 (1/2025), I will be over the earnings limit and will pay the penalty, how does the "Adjustment to the reduction factor" come into play.
In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
Can someone explain this in layman term. MY FRA is 67, currently working and likely apply for SS at 65 (1/2025), I will be over the earnings limit and will pay the penalty, how does the "Adjustment to the reduction factor" come into play.
Guess. You are claiming early so your benefit is reduced from what it would be at FRA. This is forever.
Since you are working you might not get the check so make sure your SS is not reduce due to the amount of work you are doing.
At 65 you should sign up for medicare but I would postpone claiming SS as long as you can if you are in good health.
In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
Partly in response to anon25 - #4, I am not sure why someone would not be able to figure it out. The OP seems to want to claim 24 months in advance of the FRA of 67. So, their benefit will be the full benefit amount at FRA be reduced by 24 * 5 / 9 = 13.33%. How difficult is that?
Whether claiming early is a good idea is a different question, but OP did not ask for any advice on that. And, there is too little information here to say if that’s a good idea or not.
In the case of early retirement, a benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.
This in and of itself, has nothing to do with the question asked, e.g., the adjustment to this 5/9 of 1% reduction factor that comes into play at FRA.
Quote:
Originally Posted by rjm1cc
Guess. You are claiming early so your benefit is reduced from what it would be at FRA. This is forever
And it looks like you guessed wrong.
What you are describing is the reduction that takes place if you file early. The title of this thread, and what the OP is specifically asking about, is the upward adjustment of this reduction that takes place at FRA when one has lost some SS benefits due to exceeding the work income limit.
Quote:
Originally Posted by kavm
Partly in response to anon25 - #4, I am not sure why someone would not be able to figure it out. The OP seems to want to claim 24 months in advance of the FRA of 67. So, their benefit will be the full benefit amount at FRA be reduced by 24 * 5 / 9 = 13.33%. How difficult is that?
More difficult than you think because this isn't simply based on the 5/9 of 1% reduction taken for every month one is under FRA when they begin drawing Social Security. No, it is more complicated than that. It has to do with an adjustment of that reduction factor taken at FRA for those individuals who filed early, but then "lost" some of their benefits because they continued to work and exceeded the SSA limit.
As you may know, if you start drawing SS before FRA and still continue to work, SSA will withhold $1 for every $2 you earn over that year's limit. ($22,320 in 2024) But then at FRA, SSA will look back at the months where they withheld benefits and then recompute how much your SS benefit will be going forward. And this recomputation is accomplished by adjusting the reduction factor downward to eliminate those months in which you didn't receive a SS check due to having exceeded the work income limit.
So to expand upon your example, if the initial reduction was for 24 months (13.33%), but during that 2-year period the OP only received SS checks for 20 months due to having exceeded the work income limit, then his SS benefit would be recomputed at FRA and his reduction would be reduced to only 11.11% 20 months x 5/9%. IOW, he won't be penalized 5/9% going forward for any months in which he did not receive a Social Security check.
This re-calculation issue is one reason I just want to keep my SS calculations as simple as possible.
I'm going to retire before FRA. And IF I were to work, I'd just stay under the earnings threshold for the above reasons. That, AND they don't give up back what they withheld all at once as a catch-up. It can take years for them to catch up up and give you back what they withheld. AND I don't trust them not to make a mistake. So I'd rather not complicate the calculations that need to be done.
I run my own numbers to try to make sure SS is correct. And this catch-up/repayment/adjustment recalculation would burn my brain cells. So knowing me, I'm doing myself a favor, but not complicating the calculations.
Millions of people collect and earn over the limit. More power to those who do.
one reason is so I can set up auto payment of medicare from my SS check.
I also don't want a delay between retiring and getting the first SS check. Sort of like missing a check. If there is a delay before First-Check, I would like that to happen while I am still working.
Those are my small reasons. The question is,........ Is there a downside to doing this?
FYI, from SSA.GOV...... "After you reach full retirement age, we will recalculate your benefit amount to take into account any months you did not receive benefits because your earnings were too high."
quite simply what you are reduced for working is converted in to time back .
so as an example if one earned over the limit and filed at 62 and gave back a years worth of checks in total over the years , then at fra they are recalculated as if they had filed at 63 , gave back 18 months of checks , then recalculated as if it was 63-1/2 , etc ,etc
Last edited by mathjak107; 04-01-2024 at 02:31 AM..
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