When you delay filing for your Social Security benefits past Full Retirement Age (FRA – age 66 if you were born between 1943 and 1954) you earn Delay Credits for each month that you delay. The credit amount is 2/3% per month, or a total of 8% for every 12 months of delay. When you file for benefits after delaying, these credits are applied to your PIA. The timing of the application of your credits is not immediate, though. Delay credits are added to your benefit only at the beginning of a new year, so this can cause a bit of confusion as you begin receiving benefits. Example For example, Janice was born on October 14, 1949, so she will turn age 66 on October 14, 2015. Janice’s PIA is $1,000. If you’ll remember from this post (When is Your Social Security Birthday), Social Security considers Janice to have reached […]
DRC
Delayed Retirement Credits for Social Security
When you delay filing for your Social Security retirement benefit until after your Full Retirement Age (FRA), your future benefit increases due to a factor known as Delayed Retirement Credits, or DRCs. These credits accrue at the rate of 2/3% for each month of delay, which equates to 8% for every full year of delay. It’s important to know a few facts about DRCs. For one – the delayed retirement credits are accumulative, not compounding. If your Full Retirement Age is 66 (if you were born between 1943 and 1954), you can accrue a full 32% in DRCs. This means that the amount of benefit that you would normally receive at FRA (which is your Primary Insurance Amount, or PIA) would be multiplied by 132% at your age 70. If your FRA is above age 66, your maximum delayed retirement credit is something less than 32% – as little as […]
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The Real Breakeven Point for Delaying Your Own Social Security Benefit and Taking the Spousal Benefit
Recently there was an article that I was involved with where we were reviewing the strategies of taking a restricted spousal benefit and therefore delaying your own benefit versus taking your own benefit. An astute reader (Thanks BL!) pointed out that there was a bit of a flaw in the logic on the costs of delaying, and therefore a significant difference in the breakeven period. Briefly, the example went as follows: Say the wife, Michelle, has a PIA of $1,300 and Mike has a PIA of $2,500. They’re both age 66, and Michelle files the restricted app and is eligible to receive $1,250 (half of Mike’s), which is only $50 less than she would receive if she filed for her own benefit. After four years of delay, she has given up $2,400 ($50 times 48 months) but now her benefit is $1,716 – $416 more than she would have received […]
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Know Your Options When Talking to Social Security
When you get ready to file for your retirement benefits, it’s important to understand what options are available to you before you talk to the Social Security Administration. There are many ways to get a good understanding of your options, including working with your financial advisor, reading up on the subject (this blog is a good place to start!), and talking to friends and relatives who have already gone through the process. The reason it’s important to know your options is because the Social Security Administration staff that you may encounter are not trained to help you maximize your lifetime benefits – they are trained to help you maximize the benefit that you have available to you today. Often the options that the SSA staff present to you are not the best options for you in the long run. In addition, SSA staff are absolutely overwhelmed by the volume of […]
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Another Good Reason to Delay Social Security Benefits
As you likely know from reading many of my articles on the subject, I have long advocated the concept of delaying your Social Security benefit as long as possible. This shouldn’t be a surprise – many financial advisors have espoused this concept for maximizing retirement income. Lately there has been a white paper making the rounds, from a Prudential veep, Mr. James Mahaney, entitled Innovative Strategies to Help Maximize Social Security Benefits. The white paper supports the very theme that I wrote about a couple of years ago in the post Should I Use IRA Funds or Social Security at Age 62?. This paper seems to have struck a chord with a lot of folks, as I’ve received it no less than a dozen times from various folks wondering if the strategies Mr. Mahaney writes about would be useful to them. The point is very clear: It makes a great […]
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Are You Leaving Social Security Money on the Table? You Might Be, If You Don’t Understand and Use This One Rule
Note: with the passage of the Bipartisan Budget Bill of 2015 into law, File & Suspend and Restricted Application have been effectively eliminated for anyone born in 1954 or later. If born before 1954 there are some options still available, but these are limited as well. Please see the article The Death of File & Suspend and Restricted Application for more details. Many couples that have done some planning with regard to filing for Social Security retirement benefits have figured out how to coordinate between the higher wage earner’s benefit and the lower wage earner’s benefit. Often it makes the most sense to file for the lower wage earner’s benefit early, at or sometime near age 62, while delaying the higher wage earner’s benefit out to as late as age 70. This method allows for a maximization of those two benefits. If you’re really astute, you probably picked up on […]
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Can I Switch to My Spouse’s Benefit At FRA?
This is a question that comes up pretty frequently, in several different flavors. Basically, here’s the full question: I started benefits at age 62, and now I’m 66 (Full Retirement Age) – can I switch over to my spouse’s benefit now that I’m age 66? And will it be based on his benefit when he was 66, or his benefit now. (He’s 70 now, and has been collecting benefits since he turned 66.) There are a couple of questions being asked here, and I’ll cover them one-by-one. Can I switch to my spouse’s benefit? The wording here is troubling, because the asker specifically wishes to “switch” to another benefit. If an individual is already receiving retirement benefits, the spousal benefit is not a “switch”, but rather an “addition” to the retirement benefit. The second issue is implied, and maybe not troublesome to the question at hand. The Spousal Benefit at […]
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Increase Your Social Security Benefit After You’ve Filed: File and Suspend Doesn’t Have to Be All at Once
Note: with the passage of the Bipartisan Budget Act of 2015 into law, File & Suspend and Restricted Application have been effectively eliminated for anyone born in 1954 or later. If born before 1954 there are some options still available, but these are limited as well. Please see the article The Death of File & Suspend and Restricted Application for more details. We’ve discussed the File and Suspend activity many times on this blog, but most of the time we refer to the activity as happening all at the same time. This is because very often we’re talking about one spouse setting the table for the other spouse to begin receiving Spousal Benefits. There is another situation where File and Suspend could be used – you could earn delayed retirement credits after you had already started receiving your retirement benefits by suspending your benefit. You must be at least Full […]
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It Pays to Wait For Your Social Security Benefits
It’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 […]
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