Should You Delay Your Social Security Retirement Benefit?

Social Security benefits are a major source of retirement income for many people. When you begin taking Social Security greatly affects the size of your benefit.

Your Social Security retirement benefit is based on the number of years you’ve been working and the amount you’ve earned. When you become entitled to retirement benefits at age 62, the Social Security Administration (SSA) calculates your primary insurance amount (PIA), upon which your retirement benefit will be based, using a formula that takes into account your 35 highest earnings years. At your full retirement age, you’ll be entitled to receive that amount. This is known as your full retirement benefit.

Retiring Early Will Reduce Your Benefit

You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you begin receiving benefits early, your Social Security benefit will be less than if you wait until your full retirement age to begin receiving benefits. Your retirement benefit will be reduced by 5/9ths of 1 percent for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1% thereafter. For example, if your full retirement age is 66, you’ll receive about 25% less if you start benefits at age 62 than if you wait until your full retirement age (30% less if your full retirement age is 67). This reduction is permanent–you won’t be eligible for a benefit increase once you reach full retirement age. However, even though your monthly benefit will be less, you might receive the same or more total lifetime benefits as you would have had you waited until full retirement age to start collecting benefits. That’s because even though you’ll receive less per month, you might receive benefits over a longer period of time.

Retiring at Full Retirement Age

Your full retirement age depends on the year in which you were born. If you retire at full retirement age, you’ll receive an unreduced retirement benefit.

Delaying Retirement Will Increase Your Benefit

For each month that you delay receiving Social Security retirement benefits past your full retirement age, your benefit will permanently increase by a certain percentage, up to the maximum age of 70. For anyone born in 1943 or later, the monthly percentage is 2/3 of 1%, so the annual percentage is 8%. So, for example, if your full retirement age is 66 and you delay receiving benefits for 4 years, your benefit at age 70 will be 32% higher than at age 66.

Monthly Benefit Example

The following chart illustrates how much a monthly benefit of $1,800 taken at a full retirement age of 66 would be worth if taken earlier or later than full retirement age. For example, as this chart shows, this $1,800 benefit would be worth $1,350 if taken at age 62, and $2,376 if taken at age 70.

Social Security Benefit Amount

Even though it sounds like delaying your Social Security benefit is a no-brainer, it is actually very complex. There are many unique factors that make every person’s situation different. While it might make sense for one person to delay benefits, it might not make sense for you.

About Chas Boinske

Charles P. Boinske, CFA, is a 30 year investment management veteran overseeing the strategic direction and portfolio management process for Independence Advisors, LLC. Have a question for Charles? CLICK HERE TO ASK CHARLES

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