Social Security is an important retirement income source. The more money you receive from Social Security, the less you must take out of your savings and the more cash you'll have to enjoy life.
You can substantially increase your monthly payment by avoiding early filing penalties and earning delayed retirement credits.
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What are early filing penalties and delayed retirement credits?
Delayed retirement credits are earned once you have reached your full retirement age (FRA) without claiming Social Security benefits.
You are assigned an FRA by the Social Security Administration based on your year of birth. If you were born in 1960 or later, it's 67. If you were born prior to that time, it's between 65 and 67.
You are allowed to claim benefits before FRA. But, instead of earning delayed retirement credits, you are hit with early filing penalties that reduce your monthly check by up to 30% if you do that. If you claim benefits at FRA, you receive your standard benefit based on your wages over your career. And if you claim benefits after FRA, the amount of your check increases each month, with the delay increasing your check amount by 8% annually for each year you wait.
You can earn delayed retirement credits until age 70. So, if your FRA is 67, you can receive as much as a 24% benefits bump above your standard benefit by waiting until then to claim benefits.
How can this increase your payment by $1,983 monthly?
Avoiding early filing penalties and earning delayed retirement credits makes a big impact on your check. In fact, it is the combination of early filing penalties and delayed retirement credits that could mean someone who waits until 70 to start Social Security gets an extra $1,983 per month.
See, the maximum monthly Social Security benefit at 62 is just $2,572 in 2023 thanks to the impact of delayed retirement credits. But the maximum monthly benefit at 70 is $4,555. That's a $1,983 difference.
Unfortunately, not everyone will increase their payment by that amount since those are the maximum benefits. You are only eligible for the max benefit if you have earned a lot of money over your career. Specifically, Social Security taxes are assessed on income up to a certain threshold, which is $160,200 in 2023. And your benefits are based on how much income you are taxed on. If you don't earn the inflation-adjusted equivalent of $160,200 for at least 35 years of your career, you won't be eligible for the maximum benefit at any age.
But, you will still see a huge benefits increase by avoiding early filing penalties and earning delayed retirement credits. You can sign into your mySocialSecurity.gov account to see what your benefit would be at age 62 or at age 70 to determine just how much your monthly payment would increase if you wait.
For many people, delaying getting this extra money is the right choice. Yes, you give up eight years of benefits by not claiming until 70 when you could start at 62. But, if you live long enough to make up for that missed income, you'll end up with more lifetime Social Security payments. And, even if you don't, a bigger Social Security check could really come in handy later in your retirement when you may not have enough savings left and when health issues could leave you with big bills.
Ultimately, you'll need to decide whether putting off your claim is worth it.
