Usually, people nearing retirement decide when to claim Social Security based on their needs and how long they think they’ll live. People who don’t expect to outlive average life expectancies can claim Social Security early. In contrast, people who think they’re going to live a long time might consider delaying.
Definition and Explanation of Delayed Retirement Credits
Delayed retirement credits are a way to increase your Social Security retirement benefits if you delay receiving them beyond your full retirement age (FRA). Your FRA is determined by your birth year and the age at which you’re eligible to receive your full Social Security retirement benefit. For example, if you were born in 1955 or later, your FRA is 67 (FRA-66 for those born between 1943-1954). However, if you delay receiving your benefits, you’ll earn delayed retirement credits, increasing your monthly benefit amount.
How Delayed Retirement Credits are Calculated
If you delay receiving your Social Security retirement benefits beyond your FRA, you’ll earn delayed retirement credits of 8% per year up until age 70. If your FRA is 67 and you delay receiving your benefits until age 70, you’ll earn delayed retirement credits of 24% (8% per year for three years) on top of your full retirement benefit amount.
For example, suppose your total retirement benefit amount is $1,500 per month at your FRA of 67, and you delay receiving your benefits until age 70. Your monthly benefit will be $1,860 ($1,500 x 1.24).
Pros and Cons of Delaying Retirement to Earn Credits
One of the main advantages of delaying retirement to earn delayed retirement credits is that you’ll receive a higher monthly benefit for the rest of your life. This can be particularly beneficial if you expect to live long or need additional income to support your retirement lifestyle. Delaying retirement can also help you avoid the early retirement penalty, which reduces your benefits if you receive them before your FRA.
However, there may be better options than delaying retirement. If you have health issues or cannot work due to a disability, delaying retirement may not be feasible. Additionally, delaying retirement may not be a viable option if you need the income to support your retirement lifestyle.
How Delayed Retirement Credits Affect Social Security Benefits
Delayed retirement credits can significantly impact your Social Security retirement benefits. You’ll earn a higher monthly benefit amount for the rest of your life by delaying receiving your benefits.
It’s important to note that delayed retirement credits only apply to your Social Security retirement benefits. If you’re eligible for other types of Social Security benefits, such as survivor benefits or disability benefits, delaying retirement won’t affect those benefits. Additionally, delayed retirement credits won’t affect the benefits of your spouse or other dependents who are eligible for benefits based on your work record.
When deciding when to claim Social Security benefits, it is important to consider your needs, life expectancy, and the potential impact on your spouse and any other dependents. Consult with a financial advisor to help you make an informed decision. If you’re ready to discuss your financial future, contact us to schedule an appointment.