Social Security is a meaningful part of many retirees' income. According to The Social Security Administration, retirement benefits replace about 40% of pre-retirement income, on average.
Your monthly income from Social Security depends on several factors, such as the age at which you claim benefits, and delayed retirement credits can help you maximize your benefits.
What Are Delayed Retirement Credits?
Delayed retirement credits are the payoff you receive for waiting to take Social Security benefits, and the reward comes in the form of a bigger monthly payout. Your benefit can increase by up to 8% per year.
Social Security benefits are tied to your age when you start taking income, and you have a "full retirement age" (FRA) that triggers full benefits. You don't necessarily need to wait until that age to retire, but taking benefits before or after that age impacts your income. Your FRA is between 66 and 67, depending on the year when you were born. People born after 1959 have an FRA of 67, and the FRA is lower for people born before then.
When you wait until after your FRA to claim benefits, Social Security increases the amount you get each month. For example, if your benefit at FRA is $2,000 per month, it would increase by 8% to $2,160 if you delay for a full year.
7 Things To Know About Delayed Retirement Credits
1. Increases Stop at 70
Your benefits increase between your FRA and age 70. After you reach age 70, there are no more delayed retirement credits, so there's no point in delaying past 70.
2. Survivor Benefits
If a surviving spouse takes over your Social Security payments after your death, they will benefit from any increases you lock in by delaying your own benefit.
3. Inflation Adjustments
If you get a cost-of-living adjustment (COLA), that increase is added to your monthly benefit, including any delayed retirement credits. By starting with a bigger monthly benefit, you can get even more out of any COLAs.
4. Spousal Benefits
A spouse taking a spousal benefit does not get a higher income if you delay claiming benefits. Their benefit would be based on your benefit amount at FRA.
5. Every Month Counts
Your benefit increases by two-thirds of 1% for every month you delay (the equivalent of 8% per year), and you don't need to delay claiming for a full 12 months after your FRA. For example, if your FRA is 67 and you retire seven months after that, you can start Social Security in the same month you retire with seven months of delayed credits.
6. Medicare Enrollment Is Critical
If you plan to wait beyond age 65 to take Social Security, verify when you need to enroll in Medicare. Missing the deadline can be costly and cause gaps in coverage.
7. It Might Not Be Too Late to Delay
If you already claimed Social Security, you may be able to suspend your payments. Doing so would result in a higher monthly benefit when payments resume. However, that option is only available between your FRA and age 70.
The Bottom Line
Delayed retirement credits can help you maximize your income and the income of a surviving spouse. You might consider delaying when you take Social Security retirement benefits if you would benefit from the extra income. Remember that payments last for your entire life.
Be sure to evaluate how you'll cover expenses if there's a gap between when you retire and when you claim benefits. For example, you might spend from your retirement savings, an approach that has pros and cons. With some careful planning, you can figure out what strategy works best for your household.