The Social Security Administration has a little trick up their sleeve. They don’t add your credits immediately if you file after full retirement age.
This is a little puzzling to me and I’m not sure why they do this. It’s not as if they don’t have the systems in place to do the calculations. After all, if you file early, the reductions are applied immediately!
I’m going to show you how this works but let me give you a little context around this first. I often discuss the monthly reductions for filing early or increases for filing early and understanding that is a fundamental part of today’s discussion. You can file for your retirement benefits between the ages of 62 and 70. If we imagine this red line is your full retirement age, your benefit is increased if you file after and decreased if you file before. The decreases are broken up into two separate bands. First, you have the 36 month period immediately prior to full retirement age where benefits are reduced by .556% per month and then anything more than 36 months where benefits are reduced by .417%. If you file after your full retirement age your benefit will be increased by .667% for every month. These increases are referred to as Delayed Retirement Credits.
It’s important to understand that there is a difference in how the increases and reductions are applied. If you file at any time before your full retirement age your benefit will be calculated by these reduction amounts and immediately reduced beginning with your first check.
That is not the case for the increases. In the operations manual you can see there are two times retirement benefits are increased for delayed retirement credits. One is in the month you attain age 70 and the other is in January of the year following the year you earned the delayed retirement credits.
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⚠️I am not an attorney, SSDI advocate, or affiliated with the Social Security Administration or any other entity of the US Federal Government. I am a practicing financial planner, but I’m not YOUR financial planner and since I don’t really know you, I can’t give you advice. So please don’t take this video as specific advice for your specific situation. Consult your own tax, legal and financial advisors. 🙇🙇🙇🙇🙇
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Social Security Delayed Retirement Credits: The Delay in Adding to Your Benefit
Social Security plays an essential role in providing financial security for millions of Americans. It serves as a safety net for retirees, disabled individuals, and survivors, ensuring that they have a steady income to rely on. While most people are aware of the basic workings of Social Security, many might not be familiar with the concept of Delayed Retirement Credits (DRCs) and how they can impact their benefits.
In simple terms, DRCs are a form of incentive offered by the Social Security Administration to individuals who choose to delay claiming their retirement benefits beyond their full retirement age (FRA). For every year that a person delays taking their retirement benefits, their eventual benefit amount increases by a certain percentage, typically 8% per year. This increase is known as a Delayed Retirement Credit.
The concept of DRCs was introduced to encourage workers to postpone their retirement and continue working, encouraging financial stability and reducing the burden on the Social Security system. It aims to reward individuals who are willing to work longer by providing them with a higher monthly benefit when they eventually decide to retire.
To be eligible for DRCs, one must have reached their FRA, which is determined based on the year of birth. For individuals born between 1943 and 1954, the FRA is set at 66. However, for those born after 1954, the FRA gradually increases by a few months, eventually reaching 67 for those born in 1960 or later.
Once an individual reaches their FRA, they have the option to start receiving their Social Security retirement benefits. However, for each year they delay, up until the age of 70, they accumulate DRCs. For instance, if a person’s FRA is 66, and they choose to delay receiving benefits until 70, they will earn a total of 32% in DRCs (8% for every year delayed).
Utilizing DRCs can significantly impact a retiree’s monthly benefit amount. By delaying their retirement, individuals can enjoy a higher monthly check for the rest of their lives. This can be particularly beneficial for those who have other income sources or sufficient savings to sustain themselves until they claim their Social Security benefits.
It’s important to note that DRCs stop accruing after the age of 70. Therefore, there’s no point in delaying benefits beyond that age, as there are no additional incentives to be gained. Moreover, it’s crucial to make an informed decision before deciding to delay retirement. Considerations such as overall health, financial needs, and expected longevity must be taken into account to determine if delaying benefits is the right choice.
While DRCs provide an opportunity to enhance monthly benefits, it’s vital to understand the potential trade-offs. Delaying retirement means forgoing Social Security income for a certain period, potentially requiring alternative income sources during that time. Additionally, waiting to claim benefits might not necessarily be financially advantageous for everyone, as individual circumstances can differ.
To get a clear picture of how DRCs would affect their benefits, individuals can consult with a financial advisor or make use of the various tools and calculators available on the Social Security Administration’s official website. These resources can help individuals estimate their retirement benefits at different claiming ages and understand the impact of DRCs on their overall financial plan.
In conclusion, Delayed Retirement Credits present an opportunity for individuals to increase their Social Security benefits by delaying their retirement beyond their full retirement age. By understanding the rules and potential implications, individuals can make more informed decisions about when to claim their benefits. Taking advantage of DRCs can provide financial security and peace of mind during retirement, ultimately helping individuals achieve their retirement goals.
The Benefit of Social Security Delayed Retirement Credits: Enhancing Your Retirement Earnings appeared first on Inflation Protection.
