May 23, 2015

One thing to know about Social Security is that the benefits received in retirement depend on the age you retire. When (and in what order with your spouse, if married) you start taking your Social Security benefits can have an incredible impact on your lifetime income. The longer you put if off, up until age 70, the greater the income you will receive. Depending on your age, you may receive credit for each year you delay beyond full retirement age.

These credits are known as delayed retirement credits, and they vary between 3 percent and 8 percent depending on when you were born. 

How Delayed Retirement Credits Work

Those who retire early receive a reduced amount. The amount is reduced exactly 5/9th of one percent for each month (up to 36 months) before your full retirement age, and 5/12th of one percent for an additional 24 months after that. If you grab your Social Security as soon as possible at age 62 (and most of us do), the benefits could be reduced by as much as 30 percent.

 

Delayed Retirement Credits

Year of birth	Credit per year
1917-24	3 percent
1925-26	3.5 percent
1927-28	4 percent
1929-30	4.5 percent
1931-32	5 percent
1933-34	5.5 percent
1935-36	6 percent
1937-38	6.5 percent
1939-40	7 percent
1941-42	7.5 percent
1943 and later	8 percent

 

What a Difference the Years Make
Year BornYearly Rate of IncreaseMonthly Rate of Increase1933-19345.5 percent11/24 of 1 percent1935-19366 percent1/2 of 1 percent1937-19386.5 percent13/24 of 1 percent1939-19407 percent7/12 of 1 percent1941-19427.5 percent5/8 of 1 percent1943 or after8 percent2/3 of 1 percent

 Source: Social Security Administration. Note: Individuals born on January 1 should use the prior year's rate. 

Your choice to delay retirement can also impact the amount of benefits your surviving spouse receives. If you start receiving benefits after full retirement age, your spouse should get your full benefit plus delayed retirement credits.

Those who qualify for benefits as a divorced or widowed spouse may also want to delay their own benefits but apply for the spousal benefit in the meantime. If you are still married, and want to delay retirement, it's possible to suspend benefits at full retirement age. This way your spouse can start collecting while you wait and collect more delayed retirement credits. How and when each person collects Social Security should be carefully thought out to maximize benefits. There are also some calculators that help. 

Don't Delay Medicare

If you do delay retirement until age 70, keep in mind that the same thing is not allowed with Medicare. Even those individuals who continue to work must sign up for Medicare once they become eligible at age 65. Actually, you can start as early as three months before your 65th birthday, which is a good idea because it makes your Medicare effective the month you turn 65. Otherwise, you have until three months after the end of your 65th year to sign up and it should become effective July 1 of the year you enroll. Those who miss signing up in time will end up paying higher premiums. For every year that you are eligible and don't sign up for Medicare Part B, the monthly premium increases by 10 percent.

Whether you should delay retirement depends on your own circumstances. But understanding the consequences of such a move can help you make an informed decision.