Chris Stein, CFP®
Delays in Your Delayed Retirement Credits
Did you know you could have a delay in receiving your delayed retirement credits? This week, I’d like to take a look at some of the mechanics of how Social Security pays your benefits and the timing involved.
Waiting to Receive Your Delayed Retirement Credits
You probably already know that every year you wait to claim your Social Security benefit after your full retirement age (FRA) you’ll receive an 8% increase. So if your full retirement age is 66 and you wait to claim your benefit until age 70 you will receive a 32% higher benefit than if you claimed at age 66. That’s pretty well known, but what some don’t know is that the benefit is accrued on a monthly basis. For every month you wait, you get a 2/3 of a percent increase. Social Security may accrue your delayed retirement credit on a monthly basis, but it sets your benefit on an annual basis. In some instances you may have to wait to receive a portion of your delayed retirement credit benefit.
Let’s say you have a PIA of $2000 at your full retirement age of 66. And let’s say you turn 66 in June of 2015. You decide to wait until you turn 68 (two years past your FRA) to claim your benefit. You would then be entitled to a 16% higher benefit. When you file at age 68, you’re expecting to receive $2320 a month but when your first payment shows up the amount is for $2240.
Because of how Social Security sets benefits, you only receive the delayed retirement credits that accrued as of Jan 1 the year you filed. Since you filed in June of 2017, you only get 18 months credit; 12 months for 2015 and 6 months for 2016. Based on this determination, you will only see an increase of 12% to your benefit instead of the 16% owed to you. Eventually you’ll get full 16%, but not right away. You will have to wait until January 2018 to get credit for the 24 months of your delayed retirement credits. Then your benefit will increase to the expected $2320.
You’ll notice that there are six months where you are essentially underpaid. From June 2017, until January 2018, you receive $80 less a month than what your retirement benefit should be. Unfortunately, there is no way to get this money back. Social Security will not make up the difference at a later date.
For some strange reason, if you delay your retirement benefit until age 70, you will get your full 32% right away. The “January Rule” won’t apply. However, anyone filing between FRA and age 70 may lose out on some of their benefit, depending on the timing.
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