The most important financial decision for older Americans is when to start drawing their Social Security benefits. You can choose to receive your first monthly Social Security check over a range of ages, but the timing will have an impact on exactly how much you get -- both now and for the rest of your life.
Most people understand that in general, the earlier you claim your Social Security, the smaller your monthly payments will be. That makes sense, because you'll receive a larger number of payments by claiming early than you would if you waited. However, there's a misimpression that many people have about the true impact of when you file has on your benefits. If you're not aware of the different sets of rules governing various types of Social Security benefits, you could needlessly miss out on months or even years of payments without getting any benefit in return.
The basic rules for retirement benefits
If you have worked long enough to receive Social Security retirement benefits based on your own earnings history, then these rules governing the size of your monthly Social Security check apply to you:
- Using Social Security's benefit calculation formula will tell you how much in retirement benefits you're entitled to receive if you claim them at your full retirement age.
- If you claim retirement benefits earlier than full retirement age, then the monthly amount will get reduced. The exact amount of the reduction is five-ninths of a percentage point for every month up to 36 months early, and then five-twelfths of a percentage point for each month beyond that. So if your full retirement age is 67 and you claim at 64, you'd take a 20% hit, while those claiming at 63 or 62 would lose 25% and 30% of their benefits respectively.
- If you claim retirement benefits after your full retirement age, you can earn delayed retirement credits. Each month you wait boosts your payment by two-thirds of a percentage point. Delayed retirement credits stop accruing after age 70, so the maximum boost for someone with a full retirement age of 67 is 24% -- 36 months multiplied by two-thirds of a percentage point per month.
Most people mistakenly believe that these rules apply to all Social Security benefits. Unfortunately, they don't -- and thinking that they do can lead you to make some really bad decisions.
Some benefits get no delayed retirement credits
Social Security doesn't give delayed retirement credits for waiting beyond full retirement age on all of the benefits it pays out. Specifically, if you're receiving spousal benefits based on your spouse's work history rather than your own, you won't be able to get any delayed retirement credits. Similarly, those who qualify for survivor benefits after the death of their spouse can't get anything extra from waiting beyond full retirement age.
Survivor benefits are particularly confusing, because the benefits that survivors receive can get increased if the deceased spouse waiting beyond retirement age before claiming retirement benefits. The survivor benefit is based on the amount the deceased spouse was receiving at death, including any delayed retirement credits if applicable. However, the survivor can't add any delayed retirement credits by waiting beyond the survivor's own full retirement age.
The consequences of waiting beyond full retirement age for spousal or survivor benefits can be catastrophic. If your full retirement age was 67 and you wait until 70 to claim one of these benefits, you won't get anything extra in your monthly payments. But you also won't be able to go back and claim back payments for the three years' worth of benefits that you missed. The most you might be able to do is to ask for six months of back payments in a lump sum. The remaining benefits will be lost.
Many articles covering Social Security are imprecise in their language about delayed retirement credits, failing to note specifically that they apply only to retirement benefits based on your own work history. If you're entitled to spousal or survivor benefits, don't make a costly mistake by waiting until 70 to claim. Get started at your full retirement age and get every penny you have coming to you.