Social Security BONUS: Delayed Retirement Credits

 

Are you afraid you’ll make a mistake with Social Security?

Are you afraid you won’t make the right choice and get less than you deserve?

You’re not alone!

Many people feel this way and make this common mistake.

Common Mistake

My dental hygienist, Judy, made such a mistake. She told me she started collecting Social Security and was getting the maximum.

Judy didn’t look old enough to be getting the max, so I asked how old she was. Her age was 66—not old enough to be getting the highest payment available to her.

Misinformation from Social Security

Someone at Social Security had told her that the maximum she could get was at age 66. While it is considered that at 66 you can get your “full” benefit, it is not the highest payment you can receive.

When Can You Start Collecting?

Let’s take a look. You can start collecting Social Security anytime between 62 and 70. The earlier you begin, the lower your payment will be. The later you begin, the higher your payment will be. It’s that simple.

If you collect early, your payment will be reduced as much as 30%, but if you wait and apply late, your payment goes up by as much as 32%.

What are Delayed Retirement Credits?

When you wait to apply for Social Security until after your Full Retirement Age, you are rewarded. For every month you wait, your payment is increased by 2/3 of 1%. That amounts to 8% every year. In the four years between 66 and 70, your payment amount will increase a total of 32%.

If your payment at Full Retirement Age were $2,000 per month, your monthly payment amount would go up to $2,640. That’s an additional $7,680 per year. You will receive that increase for the rest of your life.

If you are in the high-income range and destined to receive the maximum payment, $2,687, at your Full Retirement Age, you can increase your payment 32% and get the true maximum of $3,576 at age 70.

Why Wait Until 70?

Waiting until 70 can be very advantageous for those that can afford to wait. It may be instrumental for those who receive survivor benefits. With survivor benefits, when one spouse passes away, the survivor only gets one Social Security payment per month. It will be the higher of the two that the couple is currently receiving. It is here that those Delayed Retirement Credits can make a difference in the financial well-being of a surviving spouse.

For instance, if John collects $2,000 per month in Social Security benefits and Mary collects $1,500, together they receive a total of $3,500. When John passes away, Mary will now receive one check for $2,000 per month. She loses her benefit entirely, which in this case means a loss of $18,000 per year.

If John had waited until 70, Mary would be collecting $2,640 per month instead. She would have that additional $7,680 in benefits each year to supplement her income, which could make a substantial difference in her standard of living.

Becoming a survivor can be difficult for many retirees. Not only does one lose a spouse, but also a large part of their income. This is when many elderly women fall into financial difficulty and possibly below the poverty level.

Many couples aren’t aware that this will happen and do not prepare for it. This leaves the survivor with much less income than anticipated.

Waiting till 70 can be critical for the financial stability of a surviving spouse in their later years. This will depend on whether or not there are alternate sources of income and the cost of living of the survivor.

Downside of Waiting till 70

You have to live until at least age 80 to make waiting till 70 pay off. In the four years between 66 and 70, you will have missed 48 monthly payments. At $2,000 per month plus the 8% increase each year, that amounts to well over $100,000. It will take at least 10 years of payments at the higher rate to compensate for that loss.

That also means you will have less money in those valuable years between 66 and 70, when you may be fit and active and able to do things you are unable to do later on.

Should You Wait?

Delayed Retirement Credits may make a difference in your quality of life in your later years, but having the income available earlier can be advantageous, too.

It’s up to you to decide if waiting is the right choice for you.

 

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