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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. Consider working with a financial advisor as you weigh your choices on timing retirement.

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

Delayed Retirement Credits

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 21% of individuals wanted to go back to work to delay their Social Security benefits. If you go back to work before your full retirement age, you can earn $19,560 in 2022 (up from $18,960 in 2021) 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 $51,960 in 2022 (up from $50,520 in 2021 ) 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

Delayed Retirement Credits

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.

Bottom Line

Be sure and look at the bigger financial picture before deciding when to start taking Social Security. One way of doing that is by asking a few key questions.

For instance, if you defer your Social Security benefits until after age 70, even though you retired earlier, will the increase in your benefits after 70 from delayed retirement credits be worth all the money you have not received in benefits between your full retirement age and age 70? If you work part-time during retirement, will the increase in Social Security benefits in the future due to delayed retirement credits be worth the taxes you pay on your additional income? If you draw more out of your 401(k) so you can defer benefits, is your increased benefit after 70 worth it?

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 up to three 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.

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