Deciding when to start getting your Social Security benefits is a critical financial decision that will affect your entire retirement. Most people know that with many benefits, there's a trade-off: Claim early, and you'll get smaller monthly payments, or wait, and see those payments grow.

However, the mechanics of exactly how the timing of your Social Security claim affects the benefits you'll receive aren't always clear to everyone. In particular, because the rules are different for some benefits than for others, it's easy to make a costly, needless mistake if you're not aware of how Social Security works. In particular, there are two situations in which it just doesn't make any sense to wait longer before claiming your benefits, and they both involve understanding the ins and outs of Social Security's delayed retirement credit system.

Two Social Security cards on top of a $100 bill.

Image source: Getty Images.

A quick guide to understanding Social Security benefits

In general, Social Security pays larger amounts if you wait to collect benefits than if you claim them early. However, there are two separate sets of rules that govern payment amounts:

  • Social Security reduces the amount of your monthly benefit if you claim it before reaching full retirement age. The amount of the reduction depends on the type of benefit, but whether you're receiving retirement, spousal, or survivor benefits, you'll potentially be subject to this reduction.
  • In some cases, Social Security increases the amount of your monthly benefit if you wait further beyond your full retirement age before claiming. The delayed retirement credit provisions apply in these cases to boost the size of your payments.

What this means is that you can always boost the size of your monthly Social Security check by waiting until reaching full retirement age. No matter what type of benefit you're entitled to receive, you'll get a larger amount if you claim at full retirement age than if you start receiving Social Security before that point.

Why delayed retirement credits are harder to understand

After you reach full retirement age, things get more complicated. Delayed retirement credits allow you to boost the size of your retirement benefit by two-thirds of a percent for every month you wait beyond full retirement age. However, there are a couple of key limitations of the delayed retirement credit rules:

  • Delayed retirement credits only apply to a worker's own retirement benefit. You can't earn delayed retirement credits on a spousal or survivor benefit.
  • Even on retirement benefits, delayed retirement credits only accrue up to age 70.

This is where people can end up making costly mistakes if they aren't fully aware of the rules. A lot of financial advice about Social Security talks about waiting until 70 as the way to maximize your benefits. But that's only true for a worker's own retirement benefits. If you're entitled to receive spousal or survivor benefits, then the only thing that waiting until age 70 to claim does is waste several years' worth of benefit checks that you'd otherwise have been eligible to receive.

Instead, those who can get spousal or survivor benefits should generally claim no later than full retirement age. That's when they'll be entitled to receive the maximum amount that they'll ever qualify for.

The exception to the rule

Unfortunately, the rules are complicated enough that there's an exception you need to know. If you're entitled to both your own retirement benefit and a spousal benefit, new rules for those born after Jan. 1, 1954, no longer allow you to claim the spousal benefit without also claiming your retirement benefit. In that case, you might not want to claim spousal benefits at full retirement age, because you'd also be deemed to have filed for your own retirement benefit at the same time. If your goal is to wait until age 70 to maximize your retirement benefit, then it might be smart to give up the potential spousal benefit. Even though it won't accumulate delayed retirement credits, the spousal benefit isn't the important consideration in this case -- the retirement benefit is.

Even with this exception, though, understanding the general rules about Social Security and delayed claiming decisions can be important. It's easy to make the wrong choice if you don't take all the considerations into account, 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.