By Alyson Dorosky
After years of paying the federal payroll tax that funds Social Security, individuals are understandably itching to claim their benefits. That may partly explain why in a recent survey, only 11% of nonretired Americans age 45 and older said they intended to delay Social Security benefits until age 70.
But Social Security sweetens the pot for anyone who waits until after their full retirement age (which varies by birth year until it reaches 67 for anyone born in 1960 or later) to take their benefits. The differences can be so dramatic that I recommend everyone:
· Understand the substantial financial benefit of waiting and taking advantage of delayed retirement credits.
· Assess your situation from every angle with the help of Social Security filing software. This is a personal decision, but make it with your eyes wide open.
Delayed retirement credits in a nutshell
The Social Security Administration (SSA) uses delayed retirement credits (DRCs) to increase an individual’s old age benefit (yes, that’s the official name) every month after reaching full retirement age. Find your full, or normal, retirement age at ssa.gov.
Between your full retirement age (FRA) and age 70, the SSA credits additional monetary benefits (DRCs) at the rate of 0.66% per month or 8% per year. You can sign in to the Social Security website to see how your benefits compare at age 62, full retirement age and 70 – or any date in between.
Here’s an example: Your primary insurance amount (PIA) is $1,000; your FRA is 67. You choose to delay filing for benefits until you reach age 70. Your benefits would increase by 24% to an estimated $1,240 monthly. That’s nearly $3,000 a year from Social Security.
If you postpone filing to a time after your full retirement age and before 70, know that your DRCs are added to your benefit payment in January of the year following the year they were earned. If you wait until 70, they’ll be in your first payment.
Delayed retirement credits acknowledge the actuarial facts of life – filing at age 62 means they’ll likely be paying you for more years than if you file at full retirement age or 70. Deciding if you can delay benefits depends on your financial, health, and family situation, including your ability to work longer and later in life.
You’ll get your cost-of-living adjustment (COLA) even if you delay
The large COLA (8.7% in 2023) announced last month could make some people trigger-happy and send them to the Social Security website or office to get what is, admittedly, an attractive raise.
Remember this: Holding off on filing to accumulate delayed retirement credits will not mean you miss out on the COLA – this year or in the future. The percentage will be added to your benefit amount when you file.
If you have buyer’s regret about not delaying your benefits
You can pull back and potentially increase your benefit for later. The SSA allows you to stop or suspend benefits. If you are under full retirement age, you must:
- File a Request for Withdrawal of Application within 12 months of when you became eligible for benefits (sorry, but you can't do that online).
- Re-pay all benefits paid to you and anyone (such as a spouse) receiving a benefit on your record.
- Re-pay Medicare premiums if they were deducted from your checks.
If you are over full retirement age, you can suspend Social Security benefits by contacting the SSA and asking them to stop paying you. You don’t have to repay any benefits, and you’ll be able to earn delayed retirement credits while your benefits are suspended.
Be careful, however. The benefit suspension will also apply to anyone (such as a spouse) who receives a benefit tied to your record (and they can’t earn delayed retirement credits). If Medicare premiums were being deducted from your Social Security payment, you’d need to repay those yourself.
Get financial advice from someone equipped with Social Security software
Sure, the SSA has calculators to help you model your benefit amount at any age based on your work record. But the SSA cannot tell you how much you’ll need to be financially secure in retirement. Health, marital status, and personal choices all factor into when to file.
That’s why I recommend working with an advisor with Social Security optimization software and comprehensive knowledge of your financial situation, including your tax liabilities.
In an upcoming column, I’ll share some ideas for ways people to pay their bills while they delay filing for Social Security benefits.
About the author: Alyson Dorosky
Alyson Dorosky, CSSCS, is head of Social Security Support for LifeYield. She has seen thousands of different Social Security scenarios in five years of working with advisors and their clients to customize filing strategies and maximize retirement income.