The Power of Delayed Retirement Credits
For each year you wait to claim Social Security after your full retirement age (FRA), up to age 70, you earn delayed retirement credits (DRCs). This strategy can lead to a substantially higher monthly benefit for the rest of your life. For individuals with a full retirement age of 67, waiting until age 70 can increase your monthly payment by 24%. These credits are a key component of maximizing your lifetime Social Security income. Once you reach age 70, the credits stop accumulating, so there is no financial incentive to delay claiming past this point.
How Do Delayed Retirement Credits Work?
DRCs are calculated on a monthly basis, adding a certain percentage to your benefit for each month you delay past your FRA. For anyone born in 1943 or later, the annual increase is 8%, or about two-thirds of 1% per month. This powerful compounding effect is a primary reason why delaying until age 70 is such an attractive option for many retirees. The table below illustrates the potential increase for someone with an FRA of 67.
| Claiming Age | Monthly Benefit (as % of FRA) |
|---|---|
| 67 (Full Retirement Age) | 100% |
| 68 | 108% |
| 69 | 116% |
| 70 | 124% |
Higher Monthly Income for Your Lifetime
The most direct and significant benefit of delaying Social Security to age 70 is the permanent increase in your monthly income. This larger benefit is also subject to cost-of-living adjustments (COLAs), meaning the higher base amount will grow with inflation over time. This can provide a powerful hedge against rising costs throughout a long retirement. A larger, inflation-adjusted check provides greater financial security and can help cover rising healthcare costs, which are a major expense for seniors.
Life Expectancy and Breakeven Point
When deciding to delay, it's helpful to consider your life expectancy. While you forfeit three years of potential income by waiting from age 67 to 70, the larger checks later can make up for this. The breakeven point—the age at which your cumulative higher benefits surpass the total you would have received by claiming earlier—is a critical factor. For a single person with an FRA of 67, the breakeven point is typically in their early 80s. If you anticipate living past this age, waiting until 70 is often the most financially advantageous strategy over your lifetime. However, personal health and family history of longevity should be carefully considered.
Providing a Larger Survivor Benefit
Delaying your Social Security can be a crucial part of a smart financial strategy for married couples, especially if one spouse was the higher earner. In the event of the higher-earning spouse's death, the surviving spouse can claim the higher of the two Social Security benefits. By delaying their claim until age 70, the higher-earning spouse ensures the surviving partner receives the largest possible monthly payment for the remainder of their life. This provides critical financial security for the surviving spouse, who might otherwise be left with a significantly lower income.
Other Considerations When Delaying
While delaying until age 70 has clear financial benefits, it requires careful planning. You will need alternative sources of income, such as withdrawals from 401(k)s, IRAs, or other savings, to cover living expenses between your retirement date and age 70. This strategy, known as a "Social Security bridge," allows your Social Security benefit to grow while you use other assets. Additionally, you should remember to sign up for Medicare at age 65, even if you are delaying Social Security, to avoid late enrollment penalties.
The Impact on Your Tax Situation
Another factor is the potential tax impact. Strategically managing withdrawals from different retirement accounts during the years you are delaying Social Security can help you manage your taxable income. For instance, making Roth conversions during these years can help reduce your taxable income later in retirement, potentially minimizing the taxes on your future Social Security benefits and helping manage Medicare premiums. Integrating your Social Security decision into your broader financial plan is crucial for a tax-efficient retirement. For more information on Social Security benefits and claiming strategies, the official Social Security Administration website is a valuable resource.
Potential Downsides of Delaying
While the benefits of delaying are substantial, they are not without risk. For individuals with serious health issues or a family history of shorter life spans, claiming earlier might be the more prudent choice. Additionally, relying on savings to bridge the gap until age 70 exposes your retirement funds to market risk for a longer period. It's essential to perform a thorough analysis of your personal circumstances, health, and financial situation before making a final decision. A personalized approach is critical to determining the optimal claiming strategy.
Conclusion
For many retirees, delaying Social Security until age 70 offers a powerful way to significantly and permanently increase monthly retirement income. The accumulated delayed retirement credits result in a larger, inflation-protected benefit that provides greater long-term financial security, especially for those with longer life expectancies. It can also provide a larger survivor benefit for a spouse. However, the decision should be based on a comprehensive financial plan that considers your health, longevity, and other retirement income sources. Ultimately, while waiting offers significant benefits, it's not the right move for everyone. The maximum benefit accrues at age 70, so waiting beyond that point provides no additional increases.
