Electing Delayed Social Security Retirement Benefits

I trust that this will find you well and enjoying life.

You can choose to delay receiving Social Security retirement benefits until you are past normal (full) retirement age. Perhaps you want to work longer because you enjoy it, or maybe you want your retirement benefit to be higher when you finally do retire.

If you are eligible to receive Social Security benefits but you delay receiving benefits until after normal retirement age, you will be eligible to receive the delayed retirement credit. The delayed retirement credit increases your retirement benefit by a predetermined percentage of your primary insurance amount (PIA) for each month you delay receiving retirement benefits up to the maximum age of 70. The amount of the credit you receive depends upon two factors:

• What year you were born
• How many months you delayed receiving retirement benefits past normal retirement age

If you were born in 1943 or later, you will receive 2/3 of 1 percent more per month or 8 percent more per year if you delay receiving retirement benefits. So, for example, if your normal retirement age is 66, and you delay your retirement until age 70, your benefit at age 70 will be 32 percent more than it would be at age 66. If your normal retirement age is 67, and you delay retirement until age 70, your benefit at age 70 will be 24 percent more than it would be at age 66.

In order to receive delayed retirement benefits, you must meet the following criteria:

• You must be at least one month older than normal retirement age, and
• You must be fully insured for retirement benefits (in most cases have 40 quarters of coverage).

Receiving delayed retirement benefits is not automatic. You must apply for benefits when you want to begin receiving them. The Social Security Administration (SSA) recommends that you contact an SSA representative two or three months before you want to begin receiving benefits. You can call the SSA at 1-800-772-1213 for more information.

If you continue to work past normal retirement age and delay receiving social Security retirement benefits, you may increase your retirement benefit in two ways. Not only will you receive a delayed retirement credit, but your earnings after normal retirement age may be substantial enough to increase your average indexed monthly earnings (AIME), upon which your benefit is based.

If you elect to receive delayed retirement benefits, then die, your surviving spouse (at normal retirement age) may receive 100 percent of the benefit you were receiving. Therefore, if your spouse has a life expectancy substantially greater than your own, you might consider delaying retirement so that your spouse may receive a higher benefit after you die.

Just because you receive a higher monthly benefit when you delay retirement doesn’t necessarily mean you’ll receive a higher overall lifetime benefit. If you delay receiving retirement benefits, the amount of each benefit check will be higher, but you’ll receive fewer benefit checks than you would have if you begin receiving retirement benefits at normal retirement age. How many fewer checks you receive will depend upon how many years you delay receiving retirement benefits.

For example, assume the following facts apply to you:

1. You delay retirement by 4 years, and retire at age 70 instead of age 66, making you eligible for an 8 percent delayed retirement credit for each year you delay retirement. You will receive 48 fewer benefit checks.
2. Your PIA is $1,000, so if you retire at age 66, your annual benefit will be $12,000. If you retire at age 70, your monthly benefit will be increased by $320, so your annual benefit will be $15,840.

Using these factors, it would take more than 12 years from the time you retire at age 70 to reach the point at which your benefits would crossover with the amount you would have accumulated if you began receiving benefits at age 66 (does not take into account annual cost of living increases).

If you were to die before reaching this crossover point, your lifetime benefits would be lower than if you had retired at your normal retirement age. Conversely, if you were to die after reaching this crossover point, then your lifetime benefits would be higher. That’s why life expectancy is one of the factors to consider when deciding whether to delay receiving Social Security retirement benefits.

You can estimate your retirement benefits online using the Retirement Estimator calculator on the Social Security website (www.ssa.gov). You can create different scenarios based on current law that will illustrate how different earnings amounts and retirement ages will affect the benefit you receive.

Consider the following questions before making your decision:

• Why do you want to delay receiving retirement benefits?
• Can you afford to delay receiving retirement benefits, or do you need Social Security retirement income as soon as possible?
• Do you expect to live long enough to benefit from delaying your retirement benefits?
• How important is it to increase the amount of survivor income available to your spouse?

Apply for delayed Social Security retirement benefits three months before you’re ready to retire, fill out an application for benefits with the SSA.

Tip: Don’t forget to apply for Medicare benefits at age 65.

Here’s a tax consideration. If you continue to work past normal retirement age, you will continue to pay Social Security or self-employment tax on your covered earnings. Even though your earnings may increase your AIME (and thus your retirement benefit), you may not be able to recoup those payroll taxes.

If we can help in any way with this or anything else related to retirement don’t hesitate to contact us.

Best regards.

Jeff Christian CFP, CRPC

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