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Deferred Social Security Retirement Credits may be the best way to optimize your Social Security benefits in retirement, as they increase your coverage by a fixed percentage for each month of delay in your claim for security. social. These monthly increases can dramatically increase your retirement income, but there are trade-offs to make. Is it worthwhile to take deferred retirement credits? Here's what you need to know about this practical benefit that is important to you.
Deferred pension credits explained
You can start collecting Social Security benefits as early as age 62, but you will only receive 100% of your benefits if you wait until you reach the retirement age. The retirement age varies depending on your date of birth, but if you were born between 1943 and 1954, you are 66 years old. If you were born after 1954, it varies between 66 and 67 years old. For example, for people aged 62 in 2019, the age of full retirement is 66 years and 6 months.
SOURCE OF IMAGE: GETTY IMAGES.
If you start Social Security at age 62, your monthly benefit is reduced by a fixed percentage for each month you make an advance claim. However, if you wait to apply after the retirement age, you may receive deferred retirement credits that increase your social security benefits by a fixed percentage for each month you expect.
Specifically, these credits increase your social security income by two-thirds by 1% for each month spent up to age 70. If you were born after 1943, this equates to an 8% increase per year of waiting. These credits apply only to benefits earned on your own work record. If you are a spouse who receives only spousal benefits, there will be no benefit to waiting beyond your retirement age. If you qualify for both spousal benefits and benefits on your own work record, it may be appropriate to defer, depending on the benefit that produces the highest monthly check.
Delaying social security to receive delayed retirement credits can result in a much larger income from social security. For example, if your full retirement pension is $ 1,000 a month and your retirement age is 67, waiting until age 70 to start receiving benefits would increase your benefit by 24%, which would allow you to pocket $ 1,240 per month instead of $ 1,000.
| year of birth | Age of complete retirement | % Paid if claiming at age 66 | % Paid if claimant at age 67 | % Paid if claimant at age 70 |
|---|---|---|---|---|
| 1943-1954 | 66 | 100 | 108 | 132 |
| 1955 | 66 months | 98 8/9 |
106 2/3 |
130 2/3 |
| 1956 | 66 months | 97 7/9 |
105 1/3 |
129 1/3 |
| 1957 | 66 months | 96 2/3 |
104 | 128 |
| 1958 | 66, 8 months | 95 5/9 |
102 2/3 |
126 2/3 |
| 1959 | 66, 10 months | 94 4/9 |
101 1/3 |
125 1/3 |
| 1960 and later | 67 | 93 1/3 |
100 | 124 |
Data source: Social Security Administration.
Waiting to apply can also help you maximize your benefit in another way. Social Security uses your highest 35-year salary to calculate your full pension benefit. If you have less than 35 years of earnings in your file, it uses zeros in its calculation, which increases the amount of your benefit. Since Social Security recalculates benefits annually to account for new years worked, a deferred approach can replace zeros (or years of low pay early in your career), increasing your benefits.
Is it a good idea to wait?
On the other hand, there are consequences linked to the delay of your social security to take into account before taking advantage of deferred retirement credits. Waiting can help you achieve financial security in retirement by increasing your monthly benefits. But it also means that you have to miss years of Social Security payments, which can reduce lifetime benefits.
For example, suppose that Lisa has reached retirement age at the age of 67 and that her pension is $ 1,000. If she waits until the age of 70 to claim, she will receive a larger monthly payment after age 70, but the total amount she would receive in terms of lifetime benefits would eclipse not the total amount she would have received by claiming at age 67 until she was paid. his early 80s.
Graphic by author.
Therefore, while taking advantage of deferred retirement credits can help you maximize your monthly benefit payments, they may not maximize the amount of lifetime benefits you receive if you do not live long.
This does not necessarily mean that you should not wait if longevity does not run in your family, however. It may still be wise to delay the filing of your claim if your spouse is counting on your Social Security benefits after you leave, as he may receive 100% of the payment you would have received if you were still alive, he said. or she is already at the age of retirement. Deferred retirement credits do not apply to persons eligible for survivor benefits. Therefore, if you are a widow or widower eligible for survivor benefits, you do not have to wait beyond the retirement age to claim them.
It should also be remembered that many retirees are forced to retire sooner than they wish for various reasons, including loss of employment. Since the unexpected can frustrate efforts to take advantage of delayed retirement credits, it is best to assume that you must apply earlier than expected. By playing carefully and saving more for retirement, you could have the flexibility you needed if your life dropped a key in your plan to delay your benefits.
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