Understanding Delayed Retirement Credits

Delayed retirement credits, which lead to larger Social Security benefits in the future, can be a financial windfall for individuals who earn them. They may be earned by deferring your Social Security benefits past your full retirement age, something you can do until you turn 70. Delayed retirement benefits are a motivation to go as long as you can without tapping into your benefits. By doing this, you can increase your Social Security income down the road significantly.

A financial advisor can help you weigh your options about when and how you want to retire.

What Are Delayed Retirement Credits?

Delayed retirement credits, which have been around since 1917, are the Social Security Administration’s (SSA) financial incentive for you to wait past your full retirement age to draw benefits. You accrue a percentage of your future monthly Social Security benefits check for every month that you delay drawing your benefits from your full retirement age until age 70. If you accrue these credits, your Social Security check will grow to be proportionately higher than it would’ve been without them.

These credits started out being worth an additional 3% per year of yearly Social Security benefits that were delayed. By 1943, the percentage had increased to 8% per year, a level that has remained unchanged. Today the SSA grants an extra two-thirds of 1% for each month you delay after your birthday month. If you retire at age 66 and defer benefits for one year, your benefits will increase by 8%, 16% for a two year delay, 24% for a three year delay and 32% for a four year delay after your full retirement age. You can consult the SSA’s website for a more detailed breakdown of available benefits.

How Delayed Retirement Credits Work

You can calculate your delayed retirement credits by multiplying the months you delay claiming Social Security benefits by 0.667 (approximately two-thirds). Using this base number, a 12-month delay will render an 8% annual boost in benefits. Here’s another example:

Let’s say you were born between 1943 and 1954, making your full retirement age 66. If you don’t draw your benefits until you reach the age of 70 (which is 48 months after your full retirement age) you earn delayed retirement credits up until the month before you turn 70. In this case, you would receive 132% of the benefit that would have come to you if you began claiming benefits at 66. You arrive at that figure by multiplying 48 (the number of months delayed) times 0.667 and adding that to 100%.

Your delayed retirement credits will appear in your benefits check in January of the year following the year in which they were earned or when you reach age 70, whichever comes first. If the Social Security recipient passes away, and if a surviving spouse files for widow(er)’s benefits, they start receiving them immediately.

Returning to Work to Delay Your Social Security Benefits

A survey done by the Employee Benefit Research Institute (EBRI) found that nearly half of workers want to work-part time and retire gradually. . If you go back to work before your full retirement age, you can earn $24,480 in 2026 before losing benefits. If you wait until after your full retirement age to return to work, the difference is quite large. More specifically, you can earn up to $65,160 in 2026 before you lose out on any benefits.

If you go back to work before your full retirement age, you will lose $1 of every $2 you earn. But after your full retirement age, you’ll lose just $1 of every $3 you earn if you go over those limits. You eventually get these benefits back, though. You also have to pay the payroll tax on Social Security while you’re working.

Keep in mind that your Social Security benefits are based on the 35 years of your highest salary. You may want to speak with a financial advisor to determine if going back to work is worth it to you from a financial perspective.

How Delayed Retirement Credits Can Affect Early Retirement

The earliest you can draw Social Security is at age 62. Drawing social security at age 62 is considered early retirement and you take a cut in your benefits. According to the Social Security Administration, if your full retirement age is 66, which means you were born between 1943 and 1954, you will take a 25% cut in your benefits and your spouse will take a 30% cut if you decide to retire at age 62. You do not earn delayed retirement credits if you retire at age 62 or any time before your full retirement age.

When Delaying Social Security Pays Off (Break-Even Analysis)

Delayed retirement credits increase your monthly Social Security benefit, but they also require giving up years of payments in the meantime. The real tradeoff is not whether the benefit grows, but whether the larger future checks eventually outweigh the retirement income you forgo by waiting. A break-even analysis focuses on the age at which the cumulative value of delaying becomes greater than the cumulative value of claiming earlier.

Consider an individual with a full retirement age benefit of $2,000 per month. Claiming at full retirement age produces $24,000 per year. Delaying until age 70 raises the benefit by 32% to roughly $2,640 per month, or $31,680 per year. By waiting four years, the retiree gives up about $96,000 in benefits that could have been collected between ages 66 and 70.

Once benefits begin at age 70, the higher payment produces an extra $7,680 per year compared with claiming at full retirement age. Dividing the $96,000 in forgone benefits by this annual increase results in a break-even period of a little over 12 years. In practical terms, the retiree would need to live into their early 80s for delaying to generate more total lifetime income than claiming at full retirement age.

Life expectancy, retirement expenses, and other types of income heavily influence this decision. Someone with substantial savings or pension income may be better positioned to delay because they can cover expenses without relying on Social Security. Conversely, retirees who depend on Social Security for basic living costs may place greater value on receiving benefits sooner, even if that results in a lower lifetime total.

Spousal and survivor considerations can also shift the analysis. The higher earner’s delayed benefit becomes the survivor benefit for a spouse, meaning delaying can provide long-term income protection for the surviving partner. Viewing delayed retirement credits through both a break-even and household-income lens helps frame the decision beyond simple percentage increases.

When Delaying Social Security May Not Pay Off

Delayed retirement credits do not benefit every retiree. In some situations, claiming earlier can produce higher lifetime income or better align with a household’s cash-flow needs. Understanding these scenarios helps balance the break-even math with real-world constraints.

One common case is when a retiree has a shorter life expectancy or significant health concerns. Because delayed retirement credits require living long enough to pass the break-even age, individuals who expect a shorter retirement horizon may receive more total benefits by claiming earlier. In these cases, the guaranteed income today can be more valuable than a larger benefit later.

Cash-flow needs also play a major role. If a retiree must draw heavily from savings or retirement accounts like a Roth IRA in order to delay Social Security, the cost of those withdrawals can offset the benefit of higher future checks. Using retirement assets early can reduce portfolio longevity and increase exposure to market risk during the early years of retirement.

For example, assume a retiree has a full retirement age benefit of $2,000 per month and could increase it to $2,640 by waiting until 70. If they withdraw $24,000 per year from their portfolio for four years to replace Social Security income, that is $96,000 removed from savings. If those funds would have otherwise remained invested, the opportunity cost of lost growth may outweigh the additional Social Security income later.

Claiming earlier may also make sense for retirees who plan to continue working part-time or who have lower overall lifetime earnings. In these cases, Social Security benefits may already be taxed at a lower rate, and delaying may not meaningfully improve after-tax income. Evaluating delayed retirement credits alongside health status, savings levels and income needs provides a more complete picture of when waiting may—or may not—be advantageous.

Bottom Line

A couple reviewing how delayed retirement credits work.

Be sure and look at the bigger financial picture before deciding when to start taking Social Security. You’ll need to think about your life expectancy, ongoing expenses, and the income available to you through part-time work or other retirement accounts. If you’re married, there are also survivor benefits to consider as part of your estate planning. It’s a complex picture, and a financial advisor can help you sort through the details and make the decision that’s right for you.

Tips on Social Security

If you want to delay your Social Security benefits in favor of delayed retirement credits, you may want to speak to a financial advisor to determine how this fits in with your overall retirement strategy. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you delay drawing your social security benefit until after 65, remember to sign up for Medicare anyway. Otherwise, it may be difficult and expensive to do.