If you delay filing for your Social Security benefit, for each month that you delay you will earn delayed retirement credits. The increase for each month of delayed retirement credit is 2/3% (0.667%) for every month. This equates to 8% in delayed retirement credits for every year of delay. But when are these credits applied to your benefit?
As with so many Social Security-related calculations, timing is everything. With delayed retirement credits, the key is exactly when you stop delaying and start collecting benefits.
Starting Benefits Before Age 70
When you’re delaying benefits past your full retirement age (FRA), you can start receiving benefits at any age after FRA up to age 70. So, for example, if you decided to start your benefits upon the month of your 67th birthday, you’d have 8% in credits earned if your FRA was age 66. For the sake of this example, let’s say your birthday is June 15.
When you file for benefits beginning in the month of your 67th birthday, you would receive a benefit calculated as:
PIA + (PIA * 4%) = Benefit for the remainder of the year
And then, in January of the following year, your benefit will be recalculated as follows:
PIA + (PIA * 8%) = Benefit for this year
(In each year, of course the PIA is assumed to have any COLA already applied before the calculation.)
You are credited with the delayed retirement credits only once a year, in January. So when you applied for your benefit, being mid-year, you had only been credited with 6 months’ worth of delayed retirement credits by that point. Then the following January, the remaining 6 months’ of delayed retirement credits are applied.
Simon, who has a PIA of $1,000 and a date of birth of September 15, 1950, is going to delay his benefit until his age 67 and 6 months (March, 2018). His benefit for the first year (2018) will be calculated as follows:
$1,000 + ($1,000 * 10%) = $1,100
This is because as of January, 2018, he has earned a total of 15 months’ worth of delayed retirement credits. The remaining 3 months are credited to him in January of 2019:
$1,000 + ($1,000 * 12%) = $1,120
Of course, there is an exception to this rule – when you start your benefits at or after age 70.
Starting Benefits at or After Age 70
The exception to the rule is when you start your benefits at or after age 70. In this case, Social Security tosses out this notion of waiting until January to apply delayed retirement credits and applies them immediately.
So, in the case of Simon (from earlier), if he waits until age 70 to file for his benefits (September, 2020), his benefit at that point would be calculated as:
$1,000 + ($1,000 * 32%) = $1,320
And no further increases need to be applied, since all delayed retirement credits are already applied to his record.