Learn how delayed retirement credits work and whether they could be a good option for you.
Definition and Example of Delayed Retirement Credits
The amount of Social Security you receive is based on your full retirement age and at what age you retire. Full retirement age depends on the year you were born. If you start claiming benefits before reaching full retirement age, you get reduced benefits. If you claim after full retirement age, you get increased benefits. For example, if your full retirement age is 67, delaying benefits until age 70 could bump up your benefit by 24%.
How Do Delayed Retirement Credits Work?
The Social Security Administration (SSA) is the government arm responsible for setting the rules and regulations and administering benefits for millions of Americans. In existence for over 80 years, the Social Security program financially supports retirees, people with disabilities, children, widows, and widowers. For many, Social Security’s delayed retirement credits are a financial incentive to continue working. If you opt for this route, you’d get a higher monthly income while at the same time boosting your overall lifetime payouts. Benefits rise by a small percentage for each month that you delay from full retirement age until age 70. The per-year increase ranges from 3% to 8%, depending on the year you were born. For example, the full retirement age is 66 for people born between 1943 and 1954. That means if they delayed retirement until 70, these folks would boost their Social Security payments by 32%. For those born in 1960 and later, full retirement age is 67.
Other Considerations for Delayed Retirement Credits
There are other rules to consider if you plan to delay your retirement:
If you retire before age 70, you don’t receive all credits at once—you’ll have to wait until January after your benefits start. If you wait until you turn 70, you get all your credits right away. The SSA advises you to sign up for Medicare at age 65, even if you don’t plan to retire then. If you wait, you could face delayed or more expensive coverage. You must be “insured” under the SSA program when you reach normal retirement age, which means you’ve earned enough credits for working. If you’ve already started your benefits but are not yet 70, you can suspend your Social Security benefits and collect delayed retirement credits.
Are Delayed Retirement Credits Worth It?
The benefit increase stops when you hit 70, so there’s no reason to delay your Social Security past then. But you may wonder if you should hold off for a year or two to bump up your retirement income. The answer: It depends. Accumulating delayed retirement credits can be a good strategy if your circumstances allow it. Start by evaluating how much you already have saved. If the amount in your retirement savings is not where you want it to be, waiting for a higher payout can help compensate for a smaller IRA or 401(k). On the other hand, if you don’t need the benefits now (i.e., you have other income) but would enjoy the higher rate later, you might also consider waiting. For people who don’t feel up to working any longer, can’t find employment, or have health conditions that limit them from working, delayed retirement might not be an option. A financial advisor can help you evaluate your situation and determine the best option for you.
