Social Security benefits are an important part of retirement, making up half of the total income for 37% of men and 42% of women who are 65 and older. That’s typically not a lot of money, however, as the average benefit is around $1,800 per month.
Fortunately, you can increase your benefit by filing later and taking advantage of delayed retirement credits. Here’s what to know.
How Are Social Security Benefits Calculated?
Your monthly Social Security payment depends on several factors. The most significant is the amount of money you earned during your working years. The Social Security Administration uses your highest 35 years of income to determine your average indexed monthly earnings—the base figure for calculating your monthly check.
The next is your filing age, or when you begin collecting benefits. You receive your full benefit if you file at your full retirement age, which depends on your birthday:
- If you were born before 1954, your full retirement age is 66.
- Add two months to your full retirement age for every year after 1954.
- If you were born in 1960 or later, your full retirement age is 67.
You can file for Social Security benefits as early as 62. However, your benefit is typically reduced for each month you file before reaching your full retirement age. So, filing at 62 could reduce your benefit by as much as 30%.
How Do Delayed Retirement Credits Increase Your Benefit?
Delaying your benefit beyond your full retirement age can have an upside. In the same way your benefit decreases for each month you file early, it increases for each month you delay. The increase is pretty straightforward: each month gives you an additional ⅔ of 1%, adding up to 8% each year.
You can earn the most delayed retirement credits by waiting until age 70 to claim your Social Security benefit. Delaying further doesn’t affect your benefit. The amount your benefit could increase depends on your birth year:
- If you were born in 1954 and your full retirement age is 66, you have four years between your full retirement age and 70. You could increase your benefit by up to 32% by waiting.
- If you were born in 1960 or later, your full retirement age is 67. You have three years between your full retirement age and 70. You could increase your benefit by up to 24% by waiting.
Why Timing Is Crucial When Collecting Benefits
Timing can significantly affect the amount you receive each month, especially compared to the penalty for filing early.
For example, say your full retirement age is 67 and your monthly benefit at that time would be $2,000. If you wait until 70 to begin collecting, your benefit would be $2,480. If you start collecting benefits at age 62, your benefit would be reduced by 30%, making it $1,400. The difference between $1,400 and $2,480 is $1,080 per month. That amount can go a long way toward funding the retirement you’ve been dreaming of. Accordingly, delaying retirement credits can be a smart financial decision if you’re in a position to take advantage.
How Do Delayed Credits Affect Spousal Benefits?
Your spouse can claim benefits on their record or yours. While your delayed credits don’t impact their spousal benefits, they can impact your spouse’s survivor benefits. So, it’s important to distinguish between the two.
Spousal Benefits
Spousal benefits are what your spouse can collect from your record while you’re alive. The base benefit is 50% of your benefit at full retirement age and doesn’t increase with delayed credits.
Survivor Benefits
Survivor benefits are what your spouse would collect if you die. This is the greater of their benefit or your benefit, including adjustments for delayed credits.
Because of survivor benefits, delayed credits can be a great way to protect your spouse. This is especially true if your benefit is higher than theirs, as they’ll be left with larger monthly payments.
Deciding When to Claim Your Benefit
Most people begin collecting benefits as soon as they’re eligible, but this isn’t always the best choice. Make your filing decision within the context of a broad financial plan, and consider factors like early filing penalties, delayed credits, and survivor benefits.
For a personalized look at your situation and future goals, reach out to a financial professional who can offer tailored insights and guidance.
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