If you want to maximize the chances of a financially secure retirement, you may decide to put off claiming Social Security — even after first becoming eligible for benefits at the age of 62 — to increase the size of your benefit checks.
Aiming for the largest payment possible can be smart for a few reasons. Social Security is guaranteed to last for life, unlike savings which can run dry. Although the formula isn’t perfect, cost of living adjustments built into the program mostly help preserve the buying power benefits offer so you don’t lose much ground due to inflation.
Unfortunately, future retirees won’t have as many options as their older peers to increase the income these retirement benefits provide. Here’s why.
Why current workers won’t be able to score as big of a boost to their Social Security benefits
There’s a simple reason why future retirees can’t increase their Social Security income as much as their older peers. It’s because full retirement age (FRA) has moved later.
FRA is the age when a retiree’s standard benefit becomes available. The standard benefit, or primary insurance amount (PIA), is based on monthly income earned during your 35 highest-earning years (after adjusting wages for inflation). Your PIA goes down if you claim benefits before full retirement age, and it goes up if you wait to get your first check until after FRA.
In the past, FRA was as young as 65, although that hasn’t been the case for a long time. For anyone born between 1943 and 1954, it was set at 66. FRA has been gradually increasing by two months a year for people born after that. So, for example, someone born in 1955 had an FRA of 66 and two months, and someone born in 1956 had an FRA of 66 and four months, and so on.
These gradual changes to FRA will soon stop, though. Anyone who was born in 1960 or later has a full retirement age of 67. This means that anyone who turns 62 in 2022 or beyond will have the latest possible full retirement age. Because their FRA has been pushed back so much, they won’t be eligible to raise their benefits as much as their predecessors.
How does a later FRA impact your ability to increase Social Security checks?
As mentioned above, your standard benefit is increased if you wait to claim Social Security until after hitting FRA. This increase happens because you can earn a delayed retirement credit for each month after FRA that you don’t get a payment.
Delayed retirement credits are worth 2/3 of 1% per month. This adds up to an 8% annual increase to your standard benefit for every year you put off getting a payment. Someone who had an FRA of 66 had the potential to earn four full years of delayed retirement credits and could thus increase their standard benefit by a whopping 32%. But if you fall into the large group of future retirees whose FRA is 67, only three years of credits are available. The maximum increase for this group is 24%.
If your standard benefit would’ve been $1,500 and you received a 32% increase, that would’ve left you with $1,980 per month in Social Security income. But future workers whose delayed retirement credits cap out at 24% could end up with a maximum check of $1,860 by waiting until 70. That means missing out on $120 extra per month that would’ve been available had you been born just a little earlier.
Unfortunately, there’s nothing future retirees can do about this, other than being aware that they won’t have the ability to boost their benefit as much, so they may need to consider saving more to supplement their Social Security income than their older counterparts did.
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