3 Rules You Must Know If You’re Putting Off a Social Security Claim

Much of what you read on the internet about Social Security suggests that a delayed benefits claim is the way to go.

A delayed claim means putting off filing for your first retirement check even after becoming eligible for a payment at age 62. Waiting beyond the time that payments first become available can result in a benefits increase that can pay off for you later in life. And a small majority of retirees get more lifetime benefits if they put off their claim, so there’s good reason so many experts advise delay.

But before you forgo income you could be eligible for, there are three key rules you must know that could affect your choice.

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1. Delayed retirement credits max out at 70

Social Security benefits increase due to a delayed claim for a few key reasons.

First, if you wait until at least full retirement age, benefits get bigger because you avoid early filing penalties. Full retirement age (FRA) is between 66 and four months and 67. If you don’t wait until then to start getting payments, your standard benefit shrinks. The penalties equal 5/9 of 1% for the first 36 months and 5/12 of 1% for each month claimed prior. So each year you put off your claim for benefits between age 62 and your FRA results in either a 5% annual increase or a 6.7% annual increase due to avoiding this reduction.

Once you’re beyond FRA, benefits can keep rising, though. After you’ve passed FRA, you earn delayed retirement credits. These add up to 2/3 of 1% per month and result in an 8% annual increase in your standard benefit.

The important thing to know about delayed retirement credits is that they can only be earned until 70. So if you put off getting payments until then, you’ll have maxed out the monthly income you receive. There’s no additional advantage to delay and thus no reason to wait beyond your 70th birthday to file for benefits.

2. Your spouse can’t claim spousal benefits until you start yours

If you’re hoping to put off claiming benefits as long as you can, be aware this decision won’t just impact your income. Your spouse could be affected, too, if they were hoping to claim spousal benefits.

Spousal benefits are worth up to 50% of the primary earner’s standard benefit. For a spouse who earns substantially less that the primary earner, it’s possible that spousal benefits will be higher than the retirement checks available based on the spouse’s own work history. And that’s certainly the case if your spouse didn’t work enough to qualify for benefits at all.

Unfortunately, if you’re the higher earner and you haven’t started getting your own retirement benefits yet, spousal benefits won’t be available. This could mean your partner has to wait — potentially for years — to access them. It’s worth thinking about this downside when deciding if a delayed claim will maximize your combined lifetime Social Security income.

3. You’ll likely have to outlive your life expectancy to break even

Finally, there’s another key issue to be aware of. Delaying your Social Security claim only leaves you better off if you live long enough that your higher checks make up for all the payments you could’ve received but missed out on.

If you wait until 70 to claim benefits, you’ll have eight years of missed income to make up for. This often means you must receive higher payments for well over a decade once your payments begin in order to break even, and even longer to end up better off for having delayed.

Many people find this doesn’t happen since Social Security’s system of early filing penalties and benefits was intended to equalize lifetime payments regardless of when you claim them. Unless you outlive the life expectancy actuaries predicted when establishing this system, you could end up with the same or less money you’d have gotten had you claimed benefits ASAP.

Knowing these rules is important to make an informed choice about whether delaying Social Security is likely to pay off in the end. Be sure you really think about the implications of your choice, as putting off a benefits claim isn’t a sacrifice you want to make without considering the downsides.

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