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  • Writer's pictureChris Stein, CFP®

Social Security, Savings Advice, and Annuities

A reader would like to know what month he’ll be able to receive his first full Social Security payment, considering his delayed retirement credits.

“I turned 66 on Oct 2, 2017, so I will turn 69 on Oct 2, 2020. I am delaying claiming my SS benefits, and I am unsure how they determine monthly cutoff dates for calculating delayed retirement credits. If I file to start Social Security benefits in Jan 2021, will I get the full deferred amount starting in January (i.e., payment in Feb), or will I have to wait to file for Feb to get the full deferred amount?”

Unfortunately, neither of your suggested options -- January or February – will get you what you’re looking for. Let me explain.

Your Full Retirement Age (FRA) was when you turned 66 on October 2, 2017. You’ve chosen to delay claiming Social Security benefits past your FRA, and today we’re around your 69th birthday, October 2020.

Just as a reminder, when people delay filing for Social Security benefits past their FRA, they are rewarded with monthly “delayed retirement credits” equivalent to 8% per year, calculated as simple growth, not compound growth.

According to your question, you’re trying to understand how to get all the credits earned up to when you claim your benefits. The challenge is in understanding how and when Social Security awards those credits. Let’s look at the way the delayed retirement credits work.

You’d think Social Security would look at the month you claim and figure out how many months you had delayed. You would then be given every single delayed retirement credit immediately. But that’s not how their system works.

The only time they make an effort to come up with an up-to-the-moment delayed retirement credit calculation is when you turn 70. You are given credit for the amount immediately, no matter when in the year you turn 70.

Attributing such credits takes place at the end of each year. As the Social Security site says, “If you retire before age 70, some of your delayed retirement credits will not be applied until the January after you start receiving benefits.”

The challenge when you claim at any time other than December – or once you turn 70 – is that Social Security only gives you the delayed retirement credits that you earned up through the end of the prior year.

To be up to date, you would have to file in December. According to your question, you’re looking to claim in January, so you’re going to miss the cutoff.

For a clearer example, let’s pretend you would claim at your 69th birthday in October 2020 instead of January 2021. You’d think you would get three full years of delayed retirement credits immediately. However, Social Security will look at how many delayed retirement credits you earned as of January 1 of the year in which you are claiming. They’re not going to give you credit for the ten months of 2020 that have gone by. That will only happen in January 2021.

While it sounds horrible, you’re really only missing out on three months’ worth of delayed retirement credits for October, November and December.

However, it’s a penalty that you never get back. It’s not like Social Security makes this up to you. It’s just how they apply these things: the timing of the application of delayed retirement credits.

In your example, where you are claiming in January 2021, you technically will have missed the deadline for crediting by one month, and they’re not going to give you that last month’s worth of delayed retirement credits until 2022. That’s when they’ll fix it. You will be missing 1/12 of the 8% earned for the year, or the 0.67% that your FRA benefits would have been increased had they added the delayed retirement credit up to the moment you claimed.

How they apply these credits is very odd. Surprisingly, they calculate it manually if you claim when you turn 70. But at any other time, they let the system calculate it – and the system only calculates the delayed retirement credits every December. If someone decides to claim during the following year, that’s what their benefit will be. And, every December, Social Security does the calculation again. It’s like their computer only works once a year.

The fact that they calculate it for you up to the minute at age 70 proves they have the technical ability to do so, but they just don’t. Maybe someday, a policy change or program change in the system will be announced that gives people their delayed retirement credits up to the month they claim.

It’s similar to Medicare premiums. Every December, Medicare premiums are set for the upcoming year. That lets you know what your premium will be at any time in the upcoming year you’re signing up for Medicare.

To wrap up, the two options you cited don’t reflect the application of the rule. If you’re claiming in January, you’re going to receive a year’s worth of benefits without getting credit for one month of delay. It’s not a ton of money, but it is money that you’ll never get back. In January 2022, it will be corrected.

October 2017 (when you reached FRA at 66) to October 2020 is three full years of delayed retirement credits. You’re going to get all those. If you file in January 2021, you’ll also get November and December 2020. Three years and two months, instead of three years and three months of delayed retirement credits. Next year, they’ll give you that tiny bit, recognizing that they never gave you credit for delaying into January.

Another option? If you want to get all the available delayed retirement credits, work until October 2021 and file at age 70. That way, you’ll get your full credits, and you’ll get them right away.

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