If you are on Social Security or will be in the near future, there is a strategy that you should know to increase your monthly checks. Based on such reports, this relatively obscure maneuver can increase the typical retiree’s Social Security check by more than $460 per month in less than three years. The Social Security Administration has also clarified that the beneficiaries can take up this chance.
Actually, the “trick” is to take Social Security retirement benefits at a later date than your full retirement age or up to age 70. It is not always easy, but it can be very much worth it in the end.
How Delaying Benefits Increases Your Payments
To illustrate how this works, it is necessary to refresh one’s memory on how the Social Security benefits are determined. The first is to calculate your “primary insurance amount” or PIA. This is the amount for which you are eligible to collect each month when you reach your full retirement age, which is gradually rising to between 66 and 67 years for new workers.
The PIA is computed from your 35 best years of work and indexed for inflation. If you apply for Social Security benefits at the precise time that you reach full retirement age, then the benefit cheque you will get will be this PIA figure.
However, you are not obliged to declare at that age. You can start claiming at age 62, but your benefits will be lower, ranging from 70% of your PIA up to 30% less. You can also defer beyond the full retirement age; this option can increase your benefit by 8% per year up to age 70.
The Maximum 24% Increase
If your full retirement age is 67, your benefit increases by 24% if you decide to delay from age 67 to 70. Thus, if your PIA is the current average of $1,915 per month, deferring retirement until 70 raises that sum to $2,375 monthly.
This is the reason why financial planners advise this “delaying” strategy to individuals who are in a position to do so. Smaller additions from delaying a year or two can be in the tens of thousands of dollars over a retirement.
The Trade-Off of Delaying
However, like most things, there is a downside when it comes to employing this strategy. Other sources of income, such as savings, spouse’s benefits, small businesses, etc., will be required to cater for expenses during the years before claiming maximum benefits at 70. However, for those who cannot afford not to receive Social Security for several years, such a decision may be unfeasible.
There are also issues to consider regarding potentially dying before one can accumulate sufficient big paychecks to make deferring advantageous from a lifetime perspective. Perhaps those people with below-average life expectancies will come out ahead in the long run if they claim sooner rather than later.
However, for the retiree in good health with enough savings or large enough nest eggs and longer life expectancy, the huge boost in monthly income from delayed claiming is highly appealing and worthy of being used in catering for retirement costs.
When You Can’t Delay Until 70
But if you can’t delay to 70, there is another scenario, an intermediate one. If you wish to get a partial, delayed retirement credit increase, you can file for it at any age between your full retirement age and 70.
Even if you retire a few months after your full retirement age, you will be getting a slightly higher payment for it. Or you could stagger it by one or two years for even bigger jumps, but not the 24 percent raise. This enables you to get some form of leverage from delaying your claim date.
In any case, you should consider your choices and determine the variation in Social Security benefits you are likely to get in your lifetime if you apply at different ages. Since waiting has such a tremendous potential increase, it is definitely a path worth exploring as you look for ways to fund retirement income requirements.