Social Security's delayed retirement credits may be the single best way to maximize your Social Security benefits in retirement, because they boost your benefit by a fixed percentage for every month you hold off claiming Social Security. Those monthly increases can significantly increase your retirement income, but there are trade-offs. Is taking advantage of delayed retirement credits worth it? Here's what you should know about this pocket-friendly perk.
Delayed retirement credits explained
You can begin collecting Social Security benefits as early as age 62, but you'll collect only 100% of your benefit if you wait until your full retirement age to claim. Full retirement age varies depending on when you were born, but if you were born between 1943 and 1954, it's 66 years old, and if you were born after 1954, then it ranges between 66 and 67. For example, for people turning 62 in 2019, full retirement age is 66 years and 6 months.
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If you start Social Security at age 62, then your monthly benefit is reduced by a fixed percentage for each month you claim early. However, if you wait to claim until after your full retirement age, you can receive delayed retirement credits that increase your Social Security benefit by a fixed percentage for every month you wait.
Specifically, these credits increase your Social Security income by two-thirds of 1% for every month you hold off up to age 70. If you were born after 1943, that works out to an 8% increase for each year you wait. These credits apply only to benefits earned on your own work record, though. If you're a spouse who will be receiving only spousal benefits, there's no benefit to waiting beyond your full retirement age. If you qualify for both spousal benefits and benefits on your own work record, then it could make sense to delay, depending on which benefit produces the highest monthly check.
Delaying Social Security to receive delayed retirement credits can result in a much larger Social Security income. For example, if your full retirement benefit is $1,000 per month and your full retirement age is 67, then waiting until age 70 to begin receiving benefits would increase your benefit by 24%, allowing you to pocket $1,240 per month instead of $1,000.
| Birth Year | Full Retirement Age | % Paid If Claiming at Age 66 | % Paid If Claiming at Age 67 | % Paid If Claiming at Age 70 |
|---|---|---|---|---|
| 1943-54 | 66 | 100 | 108 | 132 |
| 1955 | 66, 2 months | 98 8/9 | 106 2/3 | 130 2/3 |
| 1956 | 66, 4 months | 97 7/9 | 105 1/3 | 129 1/3 |
| 1957 | 66, 6 months | 96 2/3 | 104 | 128 |
| 1958 | 66, 8 months | 95 5/9 | 102 2/3 | 126 2/3 |
| 1959 | 66, 10 months | 94 4/9 | 101 1/3 | 125 1/3 |
| 1960 and later | 67 | 93 1/3 | 100 | 124 |
Data source: Social Security Administration.
Waiting to claim may also allow you to maximize your benefit in another way. Social Security uses your highest 35 years of earnings when calculating your full retirement age benefit. If you have fewer than 35 years of earnings on your record, it uses zeros in its calculation, which weighs down your benefit amount. Because Social Security recalculates benefits every year to take into consideration new years worked, a delay-and-work approach can replace zeros (or low-earning years early on in your career), thereby boosting your benefit.
Is it a good idea to wait?
There are cons associated with delaying your Social Security that ought to be considered before taking advantage of delayed retirement credits. Waiting can help you achieve financial security in retirement by increasing your monthly benefit, but waiting also means missing out on years worth of Social Security payments, and that can result in a smaller haul in lifetime benefits.
For instance, let's say Lisa has a full retirement age of 67 and her full retirement age benefit is $1,000. If she waits until age 70 to claim, she'd get a bigger monthly payment in her 70s, but the total amount she'd receive in lifetime benefits wouldn't eclipse the total she'd receive by claiming at age 67 until she's in her early 80s.
Chart by author.
Therefore, while taking advantage of delayed retirement credits can help you maximize your monthly benefit payments, they might not maximize the amount in lifetime benefits you collect if you don't live a long life.
That doesn't necessarily mean you shouldn't wait if longevity doesn't run in your family, though. It can still make sense to delay when you claim if your spouse will rely on your Social Security benefits for income after you're gone, because your spouse can receive 100% of the payment you'd collect if you were still alive, if he or she is already at full retirement age. Delayed retirement credits don't apply to people who qualify for survivor benefits, though, so if you're a widow or widower who qualifies for survivor benefits, there's no need to wait beyond full retirement age to claim them.
It also shouldn't be ignored that many retirees are forced to retire earlier than they want for various reasons, including job loss. Since the unexpected can derail efforts to take advantage of delayed retirement credits, it's best to assume you'll have to claim earlier, rather than later. Playing it conservative and saving more for retirement now could give you the flexibility you need if life throws a monkey wrench in your plan to delay your benefits.
