The Social Security Administration (SSA) says it has good and bad news for consumers to start 2022. The agency announced that the full retirement age has officially been increased to age 67. However, it also noted that it would be the last year that a change to the retirement age would occur unless action is taken by Congress.
That might be a don’t-hold-your-breath kind of thing. The last time Congress changed the full retirement age was in 1983, a move that came on the heels of life expectancy increasing and health improvements being made for older Americans.
The action is estimated to affect about 70 million Americans and is the biggest change since 1982, when recipients saw a 7.4% increase in benefits.
Penalties for collecting benefits early
The SSA never promised that there wouldn’t be any math involved, but there is.
Workers can now start collecting Social Security checks when they turn 62, but there’s a penalty for beginning that early. The benefit will be reduced by 5/9 of one percent (or 1/180) for every month before a recipient reaches full retirement age, up to three years. If consumers begin withdrawing benefits more than three years (or 36 months) before full retirement age, then benefits are reduced by 5/12 of one percent (or 1/240) each month.
As an example, if a person decided to collect Social Security at age 62, then the benefit would be reduced by 30% on a monthly basis to the primary beneficiary. Putting that into real numbers, someone who is getting a $1,000 retirement benefit would have that total reduced by $300. A spouse’s benefit would also be reduced by 35%. If a spouse was receiving $500 per month, then they would get $325 per month going forward.
To make things simpler, the SSA has prepared a benefits planner that includes a chart on retirement ages. It’s available here.
Social Security recipients and new income tax credits
With tax season in full swing, the SSA also wants recipients to be aware that there are some new special tax credits that can go towards expenses. The tax credits are available even if someone receives Supplemental Security Income (SSI) but doesn't normally file a tax return.
The biggest of those is the Child Tax Credit (CTC), which was expanded last year to help families that are raising children. The credit can be claimed by anyone who has a qualifying child, even if they don’t usually file a federal tax return. It can benefit the taxpayer up to $3,600 per qualifying child under age 6 and up to $3,000 for each qualifying child aged 6 to 17 years old. Full details on the CTC are available here.
The agency reminds Social Security recipients that they may also be eligible for the Earned Income Tax Credit (EITC). Beginning in 2021, the amount of investment income an American can receive and still be eligible for the EITC increased to $10,000. The only catch is that a person must qualify and file a federal tax return to claim the EITC. You can visit ChildTaxCredit.gov for options to file a federal tax return for free.