2 Little-Known Social Security Rules Can Increase Your Monthly Benefits by Up to 77% (Even If You're Already Collecting Benefits)

The age at which you claim your Social Security benefits will have a big impact on their size. If a person who had average earnings throughout their working life files for Social Security at 62 this year, their benefits will replace roughly 30% of their pre-retirement income. But if that same person delays taking benefits until they turn 70, their checks will be equivalent to more than 50% of their pre-retirement income.

Despite this, roughly 25% of eligible U.S. workers claim Social Security at 62, and the vast majority do so well before they turn 70. Anyone who claims early is choosing to receive a smaller monthly benefit in exchange for getting a larger total number of checks, and some people eventually come to regret that decision.

Fortunately, two little-known Social Security rules can in some cases allow those early filers to reverse course, giving them the chance to increase the size of their monthly benefits by up to 77%.

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How claiming age impacts Social Security benefits

If a person is claiming Social Security based on their own work history, their benefits will be based on two things: their lifetime income and their claiming age. First, their inflation-adjusted income from the 35 highest-earning years of their career is run through a formula to find their primary insurance amount (PIA). That's the monthly benefit they will receive if they start taking Social Security at their full retirement age (FRA), which is 67 for anyone born in 1960 or later.

Second, the PIA is adjusted for early or delayed retirement. Anyone who claims Social Security before their FRA gets a reduced monthly benefit. Anyone who claims Social Security after their FRA gets a bigger benefit.

There are two qualifications to those rules: First, eligibility for retirement benefits begins at 62, so you cannot claim Social Security any earlier. Second, delayed retirement credits stop accumulating when one hits 70, so there is no value in waiting any later than that to claim Social Security.

The chart below shows the benefits retirees will receive (as a percentage of their PIA) based on their birth year and claiming age.

Data source: Social Security Administration.

As shown above, someone born in 1960 or later will receive 70% of their PIA if they claim Social Security at 62. But they will receive 124% of their PIA if they claim at 70. In other words, retired workers born in 1960 or later can increase their monthly benefits by 77% by taking Social Security at 70 rather than 62.

Workers who claim earlier and regret that decision have two options for recourse. The Social Security do-over rule erases benefit reductions and lets recipients earn delayed retirement credits. Alternatively, the Social Security suspension rule lets recipients earn delayed retirement credits, but does not erase benefit reductions.

To fully appreciate those rules, readers must first understand how benefit reductions and delayed retirement credits work.

• Benefit reductions: When a person begins taking Social Security before they reach their FRA, their monthly benefits (based on their PIA) are reduced by five-ninths of 1% per month for up to 36 months, and five-twelfths of 1% per month thereafter.
• Delayed retirement credits: If a person postpones taking Social Security until after they reach their FRA, their monthly benefits are increased by two-thirds of 1% for each month they delay, or 8% per year.

The Social Security do-over rule gives retirees a chance to increase monthly benefits by up to 77%

Some retirees who have claimed benefits but have not reached their FRA can withdraw or cancel their benefits application by filing a Form SSA-521 with the Social Security Administration. To be eligible:

• The Form SSA-521 must be filed no more than 12 months after benefits are approved.
• Any money received from Social Security must be repaid, including any Medicare premiums withheld.
• Benefit applications can only be canceled or withdrawn once.

There are two advantages to canceling or withdrawing your Social Security benefits application. First, it allows you to eliminate the benefit reduction incurred for starting Social Security before FRA. Second, it lets the recipient earn delayed retirement credits once they reach FRA.

Here is an example: A retired worker born in 1960 will receive a monthly benefit equal to 70% of their PIA if they claim Social Security at 62. But they can eliminate the benefit reduction by filing a Form SSA-521, repaying the benefits they've taken, and waiting until their FRA to refile. If that retired worker does not reapply for Social Security until they turn 70, their monthly payment will be 77% larger than they would have been entitled to had they kept taking benefits.

The Social Security suspension rule gives retirees a chance to increase monthly benefits by up to 24%

Retirees who have reached their FRA can suspend their benefit payments by notifying the Social Security Administration that they wish to, either orally or in writing. Suspending payments won't eliminate the benefit reductions incurred for claiming Social Security before FRA, but it will let the recipient earn delayed retirement credits that increase their payout once they choose to reinstate their benefits.

Here is an example: A retired worker born in 1960 will receive a monthly benefit equal to 100% of their PIA if they claim Social Security at FRA. But they can increase their benefit with delayed retirement credits by suspending payments. If that retired worker pauses Social Security at 67 and resumes taking payments at 70 (which happens automatically at that point if they haven't done it sooner), their monthly benefits will increase by 24%.