• Chris Stein, CFP®

Social Security Maximum Deferred Credits

A reader from Indiana looks for advice on the exact month he should file for his Social Security retirement benefit to get the maximum deferred credit amount.


“I am planning to take Social Security around the beginning of 2023. However, I have heard Chris talk about not receiving delayed retirement credits until the following January if you file after your Full Retirement Age (FRA). I am past my FRA, so I’m trying to determine (1) if I should file in December and (2) if I’ll get my credits in January if I do.”


We haven’t explained this nuance to our readers in a while – about crediting you on delayed retirement credits – so your question is a good reminder. The issue is not widely discussed when researching on the internet or other publications that might try to educate you on Social Security. This nuance is found deep down in the Social Security rule book.


As it turns out, the Social Security Administration determines what delayed retirement credits you are granted in January each year. The exception is if you are turning 70 and turning on your SS benefit at its maximum amount. Here’s what I mean by that:


I don’t have any precise details about you, so let’s pretend for a minute that my birthday is in April. Let’s also say that my Full Retirement Age (FRA) is 67 and that I’ve delayed claiming my Social Security retirement benefit to age 68. If someone waits, everyone knows that Social Security will grant an 8% increase in benefits per year. Technically, credits are granted monthly, so they will give a 2/3% increase to a benefit simply as a reward for each month waited past FRA.


Now, in our example, my FRA was 67. So if I wait until 70, I will receive 24% more (8% per year for three years). And it doesn’t matter what month my birthday is: when I turn on my benefit, Social Security will grant me a 24% increase.


On the other hand, if I claim before age 70 but after my FRA, they will not do a real-time calculation of my delayed retirement credits. Instead, they’ll look back and see how many delayed retirement credits I had earned as of January 1 of the year I claim. I can wait as many months as I choose. In our example, being born in April, if I wait until December, I will have delayed eight months – and eight times 2/3 is 5-1/3%. So they’re going to say, “Chris has earned a 5-1/3% increase in his benefit due to delayed retirement credits.”


However, I told you I was going to wait one year. So instead of filing in December, I will wait until the following April (when I turn 68) to earn the extra 8%. Well, it turns out that when I claim in April, Social Security will turn on my benefit equal to the amount I would have earned had I claimed on January 1. In other words, they’re going to give me the 5-1/3% increase. And it won’t be until the following January, eight months later, that I get rewarded with another full year’s worth of increase, catching me up to those four months that I effectively missed out on at the beginning.


In short, I will be underpaid by a little bit for eight months. And I won’t get that back because Social Security does not make up that shortfall. To deal with that loss, I could say, “Well, I’ll wait until later in the year, so I’m not collecting the lower amount for as long a period.” But now I’m giving up receiving benefits for months. How long is it going to take for me to get this back?


There isn’t a magical month of the year for you to claim that will solve – or optimize – what you receive. I’ve never seen a calculator that identifies the ideal month, which would be based on your birth month and your FRA. Maybe I should put together a spreadsheet that does so, but I’m not promising there even is an optimal month.


You need to be aware of how this works, so you’re not shocked and then complain to Social Security, “Hey, I waited a full year, and I should be getting 8% more,” when they tell you, “Oh, you’re going to get 5-1/3% more than your FRA benefit. Then, at the end of the year, we’ll catch you up to that 8% for the extra year that you delayed.” Social Security has a fix, but you still miss out on some delayed retirement credits for a while.


It’s true that the earlier in the year you claim (I chose April in our example), the fewer months of delayed credits you will miss, but the more months that the “shorted” benefit will be in effect until the end of the year. The later in the year, the more months of missed credits you’ll experience, but the number of months affected is lower because fewer months are left in the year. Ultimately, the offsetting effect depends upon what part of the year you claim compared with your FRA month.


There is no simple math to tell you what to do if you want to optimize what you collect. But, in all the numbers I’ve examined, the dollar difference isn’t significant enough to get too upset. Just be aware of how Social Security does it if you don’t wait until age 70. It’s as if they don’t want to go through the manual calculation, so they let the system use its January 1 determination unless you turn 70. Then they’ll pull out the calculator and make the adjustments to be sure you get the complete 24% (or if your FRA was 66, your complete 32%).


If you claim at 70, they’ll make you whole immediately. But if you claim any other month, back to the month you reached FRA, you’re technically not going to get all your delayed retirement credits earned by the moment you filed. So, yes, there will be a delayed effect.


Your question concerns a little-known application of the rules – not a law – of how Social Security has decided to implement delayed retirement credits. It’s how their system does it. I’ve never heard a good reason, especially considering they’re willing to do it the right way when you claim at 70. So why can’t they teach the computer to calculate it when you claim at age 68 and four months, for example?


But they don’t -- unless something has changed. And I’ve had no indication of a system update that calculates in real-time rather than allowing a delay in calculations.


In short, this is a convoluted procedure that you should be aware of if you’re counting on delayed retirement credits and are claiming before you’re 70.

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