Increasing your Social Security benefits can be a great financial move. These benefits are guaranteed to last for life, so you won't have to worry they'll run out before you die. Plus, they have built-in Cost of Living Adjustments, which means your spending power should keep pace with inflation (or at least come close to it).
Historically, one of the best ways to increase your monthly benefit was to wait to claim it. And that's still a good option. Unfortunately, you no longer have as many opportunities for increasing your standard benefit as earlier retirees did, and future retirees will have even less chance to get a bigger check. Here's why.
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This important Social Security change affects your ability to increase your income
Waiting to claim your Social Security can result in a larger monthly check as a result of something called delayed retirement credits. You earn these when you wait until after your full retirement age to get your first payment.
Delayed retirement credits increase your standard benefit by 2/3 of 1% per month. They can be earned until age 70, and the benefits increase is permanent. For each full year that you wait to claim, these delayed retirement credits end up adding up to an 8% benefits increase.
That's a great deal for seniors, and when full retirement age was 66, older Americans had ample opportunity to take advantage of delayed retirement credits. With four years of chances to earn credits, seniors could increase their standard benefit by 32%, taking a benefit that would have been $1,500 a month at full retirement age and turning it into a $1,980 monthly payment.
Unfortunately, full retirement age has been moving later for a long time. Those who hit the age of 66 last year did not hit full retirement age until they were 66-and-a-half years old. And anyone turning 66 this year won't reach FRA until 66 and 8 months. FRA will move again next year, too, and the year after that, at which time anyone born in 1960 or later will have an FRA of 67.
For those who are reaching age 66 in 2024, the most delayed retirement credits they can earn are three years and four months' worth. And for those with a full retirement age of 67, they can earn only a maximum of three years of credits. That would result in a 24% increase in their checks instead of the 32% increase earlier retirees could get.
For someone with a $1,500 standard benefit and an FRA of 67, the biggest they could make their monthly payment would be $1,860, which is $120 less than the amount that was available to earlier retirees.
Future retirees need to know that this option to increase benefits will be more limited going forward, and they should make sure to plan for a savings account balance large enough to support themselves when combined with the Social Security checks they're able to earn.
This may mean having a little bit extra in their 401(k) than their earlier counterparts needed since they won't be able to get the additional income from Social Security that extra delayed retirement credits could have provided.
