Making Every Month Count – Excerpt from A Social Security Owner’s Manual, 3rd Edition

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Did you realize that even delaying a few months can have a significant impact on your Social Security benefit? This is the case for all Social Security benefits, including your own, a Spousal Benefit, or a Survivor Benefit. This applies whether you are taking the benefit before FRA or after, since your age is always calculated by the month. Increase or reduction factors are applied for each month of delay or early application, respectively.

Early Application Factors

For each month prior to your Full Retirement Age (FRA), a reduction factor is applied. For the 36 months just prior to your FRA, your benefit is reduced by 5/9 of 1% (0.005556) – so applying a full 36 months prior to FRA will result in a reduction of 20% (5/9% * 36 = 20%). Any months greater than 36 will result in a 5/12 of 1% reduction (0.004167), which means applying an additional year earlier will result in 5% more reduction, added to the 20%.

For each month after age 62 you delay applying for benefits, you’ll increase the amount of your actual benefit – delaying to age 63 will eliminate 5% of the reduction versus applying at age 62. If your FRA is 66, delaying to age 64 will eliminate an additional 6.66% of reduction, as will delaying each additional year up to FRA. But the key is that even a few months’ delay can increase your benefit. The amount of your benefit when you file is permanent, unless some other factor impacts it such as suspending or working while receiving benefits.

Delayed Application Factors

When you delay applying for benefits past your FRA, you receive an increase in your benefit above your PIA. These increases are known as Delayed Retirement Credits, or DRCs. DRCs are better than the increase (or rather, lack of decrease) you achieve by delaying application after age 62. For each month you delay applying for benefits beyond FRA your benefit will increase by 2/3 of 1%, for a total increase each year of 8% (a little less for folks born prior to 1943).

So – make every month count! If you can delay even by a few months it can make a long-lasting difference in your lifetime benefits – and potentially for your spouse as well, if he or she survives you.

It should be noted that DRCs only accrue up to age 70. At age 70 your increase factors have maximized and no further factors will be applied. Of course, if you’re still working and earning fat cash your benefit could possibly continue to increase beyond your age 70, but that’s a topic for another time. Suffice it to say there is no additional DRC earned after you’ve reached age 70, so the latest age you should file for retirement benefits is age 70.

So those are your delay factors – use them wisely!

A Social Security Owner’s Manual 3rd Edition Now Available

The wait is over! The 3rd Edition of A Social Security Owner’s Manual has just been published and is available on Amazon.com! You can find the paperback version by going to this link, or if you prefer the Kindle variety (all the cool kids do!) you can find the Kindle version by clicking this link.

Thanks to everyone who helped out on the latest edition – with your comments, suggestions, and pointing out my typos. I hope you get as much benefit from the book as I have enjoyed producing it. Let me know if you have suggestions for future editions!