AdviceIQ

Delaying Social Security

The mechanics of waiting to receive Social Security retirement benefits until after your retirement age are daunting. You can receive a lot more through waiting until age 70. Let’s explore how this all works.

When you delay filing for your Social Security until after what’s called your Full Retirement Age (FRA), which is 67 if you were born in 1960 or later, your future benefit increases due to Delayed Retirement Credits, or DRCs. (You can file at 62, but will receive less.)

These credits accrue 0.66% for each month you delay after you turn your FRA, which equates to 8% for every full year of delay.

Sounds great, but you need to know a few facts about DRCs. These credits are accumulative, not compounding. If your FRA is 66 (you were born between 1943 and 1954), you can accrue a full 32% in DRCs.

This means that the amount of benefit that you normally qualify for at FRA (your primary insurance amount, or PIA) increases 32% when you reach 70. If your FRA is above age 66, your DRC maxes out at something less than 32% – as little as 24% if your FRA is 67.

Delayed retirement credits stop once you reach 70, no matter your FRA. DRCs also can only enhance your own retirement benefit, not spousal or survivor’s benefits.

If you delay your benefit to achieve the DRCs and die before you turn 70, your DRCs stop at your death. Your surviving spouse becomes eligible for a Social Security survivor benefit with DRCs as of the date of your death; even if your spouse delays receiving his or her survivor benefit after your death, no more DRCs accrue to that benefit.

For example, if you die at age 68 years and six months, your surviving spouse becomes eligible for a survivor benefit equal to 120% of your PIA. For example, if your PIA is $1,500, your surviving spouse qualifies for a monthly benefit of $1,800.

The same holds true if you decide at some point before you turn 70 to go ahead and file for your own benefits then stop them temporarily. This file and suspend provision applies if you’re at least your FRA and you file for your own retirement benefit and then immediately suspend that benefit. This action sets your filing date, which provides for your dependent or auxiliary benefits (to such recipients as your children or spouse) based on your work record.

Most examples of file and suspend illustrate an individual using the tactic at FRA (let’s assume that’s age 66) and then delaying benefits until 70. You don’t have to delay that long; if you delay until, for example, 67, you realize an 8% increase in your benefits since you waited a year.

You can file any time after you reach your FRA to achieve the 0.66% increase for each month. You also don’t need to file and suspend before filing for DRCs, either.

You might choose to file and suspend if you want to delay your own benefit and still provide a spousal benefit for your husband or wife, that benefit being based on your own work record. On the other hand, you might not want to file and suspend if you plan to file a restricted application for spousal benefits (and not for your own benefits) based on your partner’s record.

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Jim Blankenship, CFP, EA, is an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, Ill. He is the author of An IRA Owner’s Manual and A Social Security Owner’s Manual. His blog is Getting Your Financial Ducks In A Row, where he writes regularly about taxes, retirement savings and Social Security.

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