Social Security benefits become available when you turn 62, and claiming ASAP is incredibly popular among seniors. If you start your benefits that early, though, you'll see a reduction in the standard benefit you'd have received if you waited. To get your standard benefit, you need to work until a designated age called your full retirement age. Full retirement age, or FRA, is between 66 and 67 depending when you were born.
Some people decide they won't want to take the hit to their benefits that comes from filing early, so plan to wait until FRA instead. But you may be surprised to find that waiting even longer than that could benefit you. In fact, there are three big reasons why you may want to keep on working and waiting to file benefits even after you've hit your FRA.
1. You could raise your AIME
Your Social Security benefits are based on your personal work history. In particular, they're based on your Average Indexed Monthly Earnings, or AIME. You get benefits equal to 90% of AIME up to a first income limit; 32% between the first income limit and a second one; and 15% above the second limit. So the higher your AIME, the bigger your monthly benefit amount.
AIME is determined by a multi-step process. First, the SSA adjusts wages earned over the course of your career to account for inflation. Next, annual wages are added together from the 35 years you earned the most. Finally, this number is divided by 420 to figure out your inflation-adjusted average monthly wage during this 35-year period. This is your AIME.
If you work until after your FRA, you could log more years of wages. If you didn't have 35 years in already, these extra years of earnings could prevent years when you had $0 in income from being included in your average and lowering your AIME. And even if you already had 35 years, you could swap out some years of low wages with years of higher ones if you're earning more now than you did when you first started working.
2. You could earn delayed retirement credits
Once you hit full retirement age, you can claim Social Security without worrying about seeing a reduction in benefits due to early filing penalties. But if you opt to retire right at FRA, you lose out on the opportunity to raise your benefit even more as a result of earning delayed retirement credits. These credits are worth a benefit boost equal to 2/3 of 1% for every single month you wait to start benefits after FRA. This might not seem like a huge amount, but it adds up to 8% for every year you delay up until the age of 70, when no additional increases can be earned.
3. You could increase survivor benefits
Survivor benefits can be paid to your spouse if you pass away first. If you raise the amount of your Social Security checks by delaying the start of them until after full retirement age, delayed retirement credits you've earned will boost the survivor benefits your partner receives. Since your spouse will be down to one income once you're gone, these extra funds could really come in handy.
Should you wait until after your FRA to claim your Social Security benefits?
As you can see, you could potentially raise the size of your Social Security checks substantially by waiting to claim benefits until after your full retirement age. You could also help ensure your spouse is more financially secure by raising the amount of survivor benefits.
Of course, there are downsides too -- including the fact that you'll miss out on months or years of income if you delay getting benefits. You have to get higher checks for a long time to make up for that missed income, and not everyone lives long enough to do so.
Still, for many pre-retirees, the advantages of delay outweigh the downsides. You just need to consider your health, your work situation, and your family situation to decide if you're one of them. Make sure you research your options carefully and weigh the pros and cons when you decide what's right for you.