Retirees often depend on Social Security as a critical income source during retirement. While cost-of-living adjustments (COLA) help combat inflation, they might not always cover rising expenses.
A lesser-known strategy, delaying benefits until age 70, can increase monthly payments by up to $450.
This method offers a significant income boost without relying on COLA increases, but it’s essential to weigh the pros and cons carefully.
Strategy
How Does the Non-COLA Increase Work?
When you’re eligible for Social Security, you can claim benefits as early as age 62. However, doing so reduces your monthly payments.
On the other hand, delaying your claim past your full retirement age (FRA)—usually 66 or 67 depending on your birth year—can increase your payments.
Every month you delay, you earn delayed retirement credits, boosting your benefit by about two-thirds of 1% per month or 8% annually.
This increase maxes out at age 70, at which point you should claim to receive the highest possible monthly payment.
Example of Benefit Growth:
- FRA Monthly Benefit: $1,919 (average retiree payout).
- Benefit at Age 70: $2,380 (after 8% annual growth).
- Monthly Increase: $461.
Over 15 years (age 70 to 85), this strategy could result in significantly higher lifetime benefits.
Steps
Step-by-Step Guide to Delaying Benefits
- Know Your FRA: This is typically 66-67, based on your birth year.
- Delay Past FRA: For every month you wait beyond your FRA, your benefits grow by about two-thirds of 1%.
- Claim by Age 70: Delayed credits stop accruing at 70, so claiming at this age maximizes your benefits.
- Suspend Benefits (Optional): If you’ve already claimed benefits but are below 70, you can suspend payments to allow further growth until age 70.
Key Considerations:
- Health and Longevity: If you’re in good health and have a family history of longevity, delaying benefits may result in higher lifetime payouts.
- Financial Needs: Retirees with pressing financial obligations may prefer claiming earlier despite reduced payments.
- Spousal Benefits: Delaying benefits for the higher-earning spouse can increase survivor benefits for the lower-earning spouse.
Real-Life Example
Let’s look at Susan, age 67:
- At 67, she’s eligible for $1,919 monthly.
- She delays until age 70, increasing her monthly payment to $2,380.
- From age 70 to 85, she receives $428,400. Had she claimed at 67, her total over the same period would have been $414,504.
Net Gain: $13,896, despite skipping payments between 67 and 70.
Who Benefits Most?
Ideal Candidates for Delaying:
- Other Income Sources: Retirees with pensions, savings, or other income streams may find it easier to delay benefits.
- Healthy Retirees: Those in good health can benefit more due to longer life expectancy.
- Married Couples: Delaying benefits for the higher-earning spouse ensures larger survivor payments.
Who Might Not Benefit?
- Health Issues: Retirees with health concerns may prefer claiming earlier to maximize total benefits during their lifetime.
- Immediate Financial Needs: If you need income now, delaying might not be feasible.
Benefits of the Strategy
This approach not only increases monthly benefits but also provides a safety net in later years when medical expenses or inflation might strain budgets.
It’s particularly beneficial for those with longevity in their family or who anticipate living into their 80s and beyond.
While the $450 increase is significant, the decision to delay Social Security requires careful planning. Consider your financial needs, health, and family circumstances to make the best choice for your retirement.
