When you take Social Security plays a vital role in how much you'll receive in benefits from the program. Most people understand that the earlier they take Social Security, the less they'll get. But the mechanics of how your full retirement age interacts with provisions that reduce early benefits, but increase monthly checks if you take them later, aren't entirely clear to everyone in or nearing retirement.

If you want to get the biggest possible monthly benefits from Social Security, you have to take advantage of the program's delayed retirement credits. Yet under current law, younger people's ability to claim delayed retirement credits is being phased down, and future moves could limit credits even further.

Social Security cards with a brass key on top.

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How delayed retirement credits work

The Social Security Administration designed delayed retirement credits to augment benefits for those who chose to wait beyond full retirement age before claiming their Social Security. In order to figure out how big your delayed retirement credit will be, you'll need to follow this four-step process:

  • Figure out how much your primary insurance amount would be. That's the amount you would receive if you took your Social Security benefits right at your full retirement age.
  • Look up what your full retirement age is. That age is 66 for those who are turning 66 in 2018 or who have done so in recent years.
  • Decide how many months after your full retirement age you intend to start taking Social Security.
  • For each month that you wait after full retirement age, increase your primary insurance amount by two-thirds of a percent.

An example can help you see how this works. Say that your full retirement age is 66 and your earnings history would produce a $1,500 primary insurance amount. If you take Social Security right at 66, you'll get $1,500 monthly. But say you want to wait until you turn 68. In that case, you'd take the number of months after your full retirement age, which is 24 months. Multiply 24 by two-thirds of a percent, and you'll get 16%.

Doing the math, 16% of $1,500 is $240, so your delayed retirement credit will be $240, and you'll get a total of $1,740 per month -- valued in today's dollars and subject to future inflation -- if you wait two years before claiming your benefits. Wait until the maximum age of 70 -- beyond which no further delayed retirement credits are available -- and you'd get a 32% bump, to $1,980 per month.

Delayed retirement credits are available only to worker benefits under Social Security. Spousal benefits don't qualify, so there's no reason for a spouse intending to receive only spousal benefits to wait beyond full retirement age before making a claim and getting those monthly payments started. However, if a spouse could claim either spousal benefits or work benefits on the spouse's own earnings history, then there could be reasons to hold off filing beyond full retirement age under current law.

Why fewer delayed retirement credits will be available in the future

As you saw above, the largest number of delayed retirement credits for those who are reaching full retirement age now is 48 months, or a 32% increase to benefit amounts. That's because the age beyond which new delayed retirement credits are no longer available is set at 70, regardless of what the full retirement age is.

Changes made to the Social Security program in the early 1980s raised the full retirement age. Early retirees are finding now that their full retirement age is higher than 66, with those turning 62 in 2018 having a full retirement age of 66 and four months. That will go up gradually over the next several years, topping out at 67 for those who were born in 1960 or later.

What that means for those considering delayed retirement credits is that there will be fewer of them to claim. If your full retirement age is 67, then the largest number of credits you can get is 36 months, because that's the length of time between full retirement age and reaching age 70. That makes the maximum boost to your benefits 24% instead of 32%, working out to a loss of $120 in potential delayed retirement credits on a monthly basis.

What's the right thing to do?

Despite not being able to get as many delayed retirement credits, those who have a while left before retiring still should think about the ideal time to claim their benefits and consider waiting if they can. Even as the reward for waiting goes down, the penalty for claiming early is also going up. The net impact still makes it smart to wait if you want your monthly check to be as big as it can be.

Figuring out when to take Social Security has personal aspects to it, but you'll also want to consider the financial implications. Understanding the ins and outs of delayed retirement credits will help you make a smarter choice.

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