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Ah, Sweet Procrastination!

tapping a pencil by Rennett StoweIt’s usually best, for most things in the financial world, to act now rather than waiting around.  The notable exception is with regard to applying for Social Security benefits.  We’ve discussed it before (in fact part of this article is a re-hash of an earlier post) but it is an important point that needs more emphasis, in my opinion.

As you’ll see from the table below, if you’re in the group that was born after 1943 (that’s you, Boomers!) you can increase the amount of your Social Security benefit by 8% for every year that you delay receiving benefits after your Full Retirement Age (FRA – see this article for an explanation).

Delaying Receipt of Benefits to Increase the Amount

If you are delaying your retirement beyond FRA, you’ll increase the amount of benefit that you are eligible to receive.  Depending upon your year of birth, this amount will be between 7% and 8% per year that you delay receiving benefits – which can be an increase of as much as 32½% if you delay until age 70 and you were born in 1941 – when your FRA is 65 years and 8 months, and the increase amount is 7½% per year at that age.  See the table below for the increase amounts per year based upon birth year:

Birth Year FRA Delay Credit Minimum
(age 62)
Maximum
(age 70)
1940 65 & 6 mos 7% 77½% 131½%
1941 65 & 8 mos 7½% 76?% 132½%
1942 65 & 10 mos 7½% 75 5/6% 131¼%
1943-1954 66 8% 75% 132%
1955 66 & 2 mos 8% 74 1/6% 130?%
1956 66 & 4 mos 8% 73?% 129?%
1957 66 & 6 mos 8% 72½% 128%
1958 66 & 8 mos 8% 71?% 126?%
1959 66 & 10 mos 8% 70 5/6% 125?%
1960 & later 67 8% 70% 124%

So you can see the impact of delaying receipt of retirement benefits – it can amount to more than 50% of the PIA (Primary Insurance Amount), when you consider early benefits versus late benefits.  Of course, by taking benefits later, you’re foregoing receipt of some monthly benefit payments; given this, early in the game you’d be ahead in terms of total benefit received.  This tends to go away as the break-even point is reached in your mid-70’s to early-80’s in most cases, which we’ll review in a later article.

An Example

Here’s an example of the benefit of delay in action:

You were born in 1954, and as such your FRA is age 66.  According to the benefit statement you’ve received from Social Security, you are eligible for a monthly benefit payment of $2,000 when you reach your FRA (which would be in 2020).  If you delayed applying for your benefit until the next year, your monthly benefit payment would be $2,160 per month – an increase of $1,920 per year.  If you delayed until age 68 (two years after FRA), the monthly payment would be increased to $2,320, for an annual increase of $3,840.  At age 69, delaying would increase your annual benefit by $5,760, and at age 70, your monthly payment would be $2,640, for an annual benefit of $31,680 – $7,680 more than at FRA.  This amounts to a 32% increase in your benefit by delaying receipt of the benefit by 4 years!

Notes

It’s important to note that this is not a compounding increase – that is, your potentially-increased benefit from one year is not multiplied by the increase for the following year.  The factor for each year (or portion of a year) is simply added to the factor(s) from prior years.  You also don’t have to wait a full year to achieve the benefit – this delay is calculated on a monthly basis, so if you delayed by 6 months your increase would be 4% over the FRA amount.

The biggest benefit of this is that you can not only increase the amount you will receive over your lifetime, but also the survivor benefit that your spouse will receive upon your passing.  For some folks this can make a huge difference as they plan for the inevitable.

Photo by Rennett Stowe

8 Comments

  1. […] receiving Social Security benefits as long as you can.  You can see this discussion in the article Ah, Sweet Procrastination – it makes good financial sense to delay receiving your benefit to age 70 in many cases, but of […]

  2. […] covered the concept of the benefit to you in delaying your Social Security application in another article, but did you realize that even delaying a few months can have a significant […]

  3. SteveNo Gravatar says:

    Thanks for the informative article, but I have a technical follow-up. I’m 60 years old and no longer employed. I notice on my annual statement from SS that my PIA increases each year even though no new earnings are being added to my compensation history. I assume this is due to some sort of COLA. My question is this: if I delay commencement of benefits until age 70, will my PIA continue to increase after age 66 (my FRA), assuming we have COLAs. In other words, will my late retirement benefit be 132% of my age 66 PIA, or 132% of an indexed age 66 PIA.
    Thank you.

    1. jblankenshipNo Gravatar says:

      Hi, Steve –
      Your benefit will increase due to COLAs, and that will impact your final calculation of your benefit at age 70. The PIA doesn’t adjust with COLAs, the COLAs (and your delay past FRA factors) are applied to the PIA to calculate the benefit.

      So, if your PIA is $1000 and a COLA is applied for 2012 of 3%, your potential benefit will be $1030. Then the next year if a 3% COLA is applied, your potential benefit will be $1,060.90 ($1,000 * 1.03 * 1.03), and so on. This continues until the year after your FRA, when both the COLA and your delay factor are applied to your PIA. Once you file and begin collecting, the COLAs will continue to be applied, but whatever your final amount of delay factors is (32%?) will be locked in.

      It’s important to note that, while the COLAs will compound ($1000 * 1.03 = $1030, $1030 * 1.03 = $1060.90, etc.), the delay factors are added together each succeeding year, rather than compounding. So delaying two years at 8% each results in a 16% factor, rather than compounding the two (or more) delay factors for a 16.64% factor.

      Hope this helps –

      jb

  4. […] described in this article, each year that you delay receiving your Social Security retirement benefit past your full […]

  5. The File and Suspend Tactic for Social Security Benefits | Business News Online says:

    […] earner’s benefit as long as possible, to age 70, in order to receive the maximum increases (see here for more details).  In order to achieve both goals, the primary wage earner applies for benefits […]

  6. RussNo Gravatar says:

    I always enjoy your posts on Social Security, Jim.

    While I feel I have a good working knowledge of the Social Security system and the factors that need to be considered when making these elections, I always learn something new from your site.

    Thanks, and keep ‘em coming.

    1. jblankenshipNo Gravatar says:

      Thank you for the kind words, Russ.

      I tend to write things that expand my own knowledge base and at the same time inform and occasionally entertain anyone else who might have an interest in the same topics. It is gratifying to know that other folks (occasionally) receive benefit from my efforts.

      jb