Every year tens of millions of people collect Social Security Benefits. According to statistics published by the Social Security Administration (SSA), at the end of 2023, roughly 67 million (1 in 5 U.S. residents) collected Social Security benefits. Older Americans make up 4 in 5 beneficiaries.
For many people, the Social Security retirement benefit is a critical source of income in their later years. It might be tempting to begin collecting a monthly benefit as soon as you reach the age of eligibility, but this might not be the best financial strategy.
Delaying Social Security benefits can significantly increase your retirement income, and understanding the strategies to do so can help you make informed decisions before you reach retirement age.
Let’s take a look at the reasons why and how you can benefit from delaying your Social Security benefits.
The Social Security Blueprint: Eligibility, Benefits, and Calculations
Deciding when to apply to claim benefits from the Social Security Administration is a primary concern for pre-retirees. The eligibility window to collect Social Security is as early as age 62, but this does not mean you are required to collect at this age.
What is Considered to be Full Retirement Age?
Full retirement age is factored by your birthday, and under current federal law is as follows:
- Anyone born in 1957 or prior to that year is considered to be at full retirement age
- Individuals born in 1958 will reach full retirement age when they are age 66 and 8 months
- People born in 1959 will reach full retirement age when they become age 66 and 10 months
- Anyone born in 1960 or later is considered to be at full retirement age when they reach age 67
The federal agency calculates your earnings based on your years of work and your lifetime earnings. To be eligible for Social Security retirement benefits, you need to have 40 credits, which equates to 10 years of work.
Calculating Your Social Security Benefits
The Social Security Administration will calculate your benefits based on your highest 35 years of earnings. If you have years you did not work, those years will count as zeroes when the federal agency calculates your benefits. In the simplest formula, the SSA will add up your 35 years of highest indexed earnings and divide by the total number of months in those 35 years (but there are more intricacies considered).
The agency also includes other factors to adjust actual earnings using the national average wage index and will include a figure to adjust for inflation each year. The formula is complex – the SSA has published a list of examples on its website of what your reduced benefit or full benefits would look like based on essential factors.
Different Types of Social Security Benefits
Social Security benefits are not a one-size-fits-all type of benefit, there are retirement benefits, disability benefits, and survivor benefits:
1. Retirement benefits
These benefits are available to individuals who are at least age 62 and worked long enough to earn the 40 work credits. You can begin partial benefits at age 62, but maximum benefits aren’t available until you reach the age 70.
2. Disability benefits
Individuals are eligible for disability benefits if they are under full retirement age, have enough Social Security credits, diagnosed with a severe medical physical and/or mental impairment, or have a terminal condition. These are paid based on your record of earnings.
3. Survivor benefits
A survivor benefit is paid to eligible family members of individuals who worked and paid Social Security taxes before they passed away. Eligible family members who will be entitled to the survivor benefit you earned include:
- Surviving spouse age 60 or older (age 50 or older if disabled)
- Spouse caring for your child under age 16 or disabled before age 22
- Unmarried children under age 18, under age 19 but still in school, or age 18 or older but disabled before age 22
- Your parents, if you provided at least 50% of their support
- An ex-spouse, under certain circumstances
Maximizing Social Security Benefits Through Delay
Filing for Social Security benefits is a personal decision and there is no “wrong” or “right” time to claim your benefit immediately or delay taking it. Basically, whether you should take delayed Social Security benefits will come down to your personal circumstances, your average life expectancy, your health condition, and your current financial needs.
People often begin collecting their benefits earlier than age 70 because they need the money. Others may retire and automatically start claiming since the idea of collecting Social Security and retirement go hand-in-hand.
If delaying to begin receiving benefits from the Social Security Administration is feasible and affordable, you can eventually receive more money per month when you eventually do file.
Full Retirement Age (FRA) vs Early Retirement
Early retirement and collection of Social Security retirement benefits can result in a reduction of up to 30%, whereas waiting until your designated full retirement age can result in your ability to collect your full monthly benefit amount.
Delayed Retirement Credits (DRCs) Explained
Delaying your FRA means you’ll receive delayed retirement credits (DRCs). DRCs are increases to your Social Security benefits for each month you delay filing to claim them when you become eligible to collect. How much of a percentage you’ll get will depend upon your date of birth.
Important to know – DRC increases will cease once you turn age 70. Overall, you can receive higher lifetime benefits if you live past what’s called the “break-even” point. This is generally 12 to 14 years post-retirement. This means if you delay claiming benefits until age 70, you will be approximately 82 to 84 years old.
Maximizing Spousal Benefits
If you can afford to wait to begin receiving benefits from the Social Security Administration until later in life, you can also potentially maximize spousal benefits for your spouse.
Strategies for married couples include both spouses delaying benefits, claiming at different ages, or combining benefits. It is a good idea to speak to a skilled financial advisor who can help calculate which options are the best strategies for your situation.
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Factors to Consider When Delaying Benefits
While delaying claiming benefits from Social Security is advantageous in bolstering your future income as you reach age 70, this strategy might not make sense for everyone. You really want to think about the pros and cons of delayed retirement credits.
1. Health and Life Expectancy
Life expectancy is a huge factor to consider when deciding when to begin collecting Social Security payments. Generally speaking, people who are in great health and have a long life expectancy will benefit from delaying. Still, those who have health issues or complications may want to begin collecting sooner rather than later if their average life expectancy is shorter.
2. Retirement Income Needs
Everyone’s financial situation is unique and if you have several streams of retirement income (savings, IRAs, pensions, 401(k)s, etc.), it may be easy to delay your Social Security payments. However, people who worked part-time or do not have large nest eggs stashed may benefit from applying for their Social Security earlier so they can afford their living expenses.
3. Tax Implications
Delaying benefits can also directly impact your taxes. It’s important to keep in mind, that there is a taxable portion of your Social Security benefits which, if you’re still working, it’ll increase your overall taxable income and put you in a higher tax bracket.
On the other hand, if you have a large retirement fund and will be paying taxes on this income, higher Social Security checks could also have tax implications. This is another area you probably want to speak with a financial advisor about.
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Strategies for Making Informed Decisions
It is important for everyone to strategically plan for their post-working future. Planning for retirement can be pretty complicated, especially when you factor in the Social Security Administration’s complex formulas regarding benefits.
Step 1. Using Savings to Delay for a Bigger Payout
Delaying Social Security is a common approach pre-retirees and retirees leverage to ensure they will receive higher incomes later in life. If you decide to retire and are entitled to benefits, you do not have to immediately apply for Social Security. If you have income readily available to you to help support yourself, you can wait to claim your Social Security.
Step 2. Social Security Benefit Estimator
Another strategy you can use is to leverage the Social Security Administration’s benefit estimator tool as a resource for initial calculations. This and other SSA calculators can help you determine what the wisest course of action is for your personal situation.
Step 3. Consult with a Financial Advisor
Consulting with an experienced and knowledgeable financial advisor can help you create a retirement plan that is suited to your monetary situation and can help yield the highest returns. When you work with a professional, they can assess your individual situation and then create a personalized strategy for maximizing your Social Security benefits.
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To Delay or Not to Delay Collecting Social Security Benefits?
Everyone’s situation is different. For many, delaying collecting SSA benefits is worth the wait, but for others, it might make more sense to begin collecting between age 62 and age 69.
Essentially, taking early payments means smaller checks for a longer period of time. Delaying means fewer checks but much larger payments, but it also means if your spouse is the lower-earning one, they will receive higher payments if they survive you.
When making your decisions, factors you want to consider include:
- Your birth year
- Current age
- If you’re still working full-time
- Plan to take a part-time job after you retire
- How much you’re entitled to benefits
- Your average life expectancy
- Current health situation
- Marital status
- Any streams of income from retirement savings
- Current living expenses
These are a few important considerations when thinking about whether you should wait until age 70 to claim your retirement benefit from the SSA.
Whatever your financial situation is, it is important to do careful planning as you approach full retirement age so you can afford to make ends meet, pay your bills, and afford to live happily during your retirement years.
Doing research and seeking the advice of a financial advisor are important steps in making the best decisions for your particular circumstances and deciding whether to take Social Security delayed benefits.
