The Strange Way Social Security Treats New Year's Day – Motley's Fool

Social Security is one of the most important programs for Americans. It offers benefits of up to hundreds of thousands of dollars during your retirement. More than 60 million people are currently receiving social security benefits and tens of millions of others can expect to receive payments from the program when their time comes.

Despite the importance of social security, many people do not understand exactly how it works. In many ways, the legislators have added to the difficulty by creating strange rules that only blur the leads without necessarily making much sense. One of these rules is how social security deals with New Year's Day – and this can have a huge effect on the amount of benefits you receive.

What you expect from Social Security on vacation

To be clear, social security takes into account many different holidays in a similar way. For example, pension benefits are paid to beneficiaries on the second, third or fourth Wednesday of each month. This calendar usually avoids most holidays, but in years where holidays such as Veteran's Day are held on Wednesdays, payments are usually postponed from one day to Tuesday.

Similarly, another program associated with payments that still have to deal with the New Year. Those who receive additional security supplement, which is a supplement based on the needs of ordinary social security, generally receive their payments the first of the month. . However, when the first day is a holiday or a weekend, payments are transferred earlier to the nearest available business day. In most years, we are talking about December 31, but there have been cases where the payment has increased by two days or more depending on the calendar.

The weird way the birthdays of January 1st is treated in the framework of social security

The rules above only serve to make you pay a payment a day or two earlier than you would otherwise receive, which is usually not a big deal for most people. However, an element of the New Year rule can have a huge and permanent impact on social security income.

The Social Security rules state that if your birthday is January 1st, you will be treated as if your birthday had occurred the previous year. So, for example, if you were born on January 1, 1955, the SSA will treat you in the same way as someone who was born on December 31, 1954. However, if you were born the next day, January 2, then you will have the same treatment as anyone born in 1955.

Why is the 1 January rule important?

At first glance, it does not seem like this day is a big problem. After all, the same is true for most other calendar-based situations when you look at the difference in treatment between a person with a birthday on December 31st and a person with a birthday on January 1st. But because of the strangeness of the rule, this often goes unnoticed – and it's easy for social security recipients to miss out on the impact.

One of the impacts is relatively minor. Those whose birthday is January 1st are treated as if they were one month older than they actually are, which means that their monthly payments will generally be higher than those in the past. a person whose birthday is January 2nd. Every month sooner than you claim benefits, you lose between 5/12 and 5/9 of one percent of your full monthly payment – if you are considered one more month, avoid losing that extra amount of advantages. Similarly, beyond the retirement age, retirement benefits increase by two-thirds per cent per month. So you can potentially benefit from an additional two-thirds increase in your payment.

The most important impact of the January 1st rule is the way in which the retirement age is calculated. The SSA states that persons born between 1943 and 1954 have a full retirement age of 66, while for those born in 1955, 66 years and two months corresponds to the corresponding full retirement age. But once again, since those born on January 1, 1955 are treated as if they were born in 1954, they will reach retirement age at age 66 – and thus avoid another two months of negative impact on amount they receive each month.

Celebrate your New Year's birthday

Obviously, you can not do anything when you are born. However, the key is to understand that a birthday on January 1st is treated differently for Social Security as compared to any other day of the year. If you are aware of the situation, you can make sure you get the benefits you deserve. It's a birthday present that can make you pay for the rest of your life.