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Padding Social Security Benefits by Accruing Delayed Retirement Credits

Published on December 18th, 2017

Social Security is a benefit that workers pay into throughout their working lives and after reaching retirement age then the worker can start receiving a monthly benefit check paying them back. The program is designed to help people as they enter old age and when they no longer work, acting as a safety net to ensure nearly everyone that worked has income in their later years. Delayed retirement credits are a way of increasing that Social Security benefit when a worker elects to start receiving their benefit payments.

Delayed Retirement Credits

What are Delayed Credits

Full Retirement age for Social Security depends on the year a person was born, currently the age range for those that are at retirement age ranges from 66 to 67 years old. Most people can begin collecting before that age, starting at 62, but drawing at that point adds a 7 percent penalty for each year prior to full retirement age, drastically reducing the benefit amount an individual can be paid.

When full retirement age has been reached, that doesn’t necessarily mean that is the age when the maximum benefit will be paid. Currently, the payments reach their peak when individuals reach age 70, because the time between full retirement and then earns delayed retirement credits. The reasoning behind the credits is that if individuals wait longer before they start taking their benefits then that keeps the money in the program to grow larger before distribution. For every month that is waited after full retirement age is reached, the recipient adds a credit of 0.66 percent to their benefit. This adds up to a full 8 percent for a each full year of delaying taking the Social Security benefits until the recipient reaches 70 years of age.

Are the Delayed Credits Worth it

Knowing whether benefits should be collected before reaching age 70 is a question each individual needs to answer for themselves. Often it’s best to speak to a financial adviser or attorney with experience dealing with the Social Security Administration, but a few factors that need to be considered are:

– Other sources of income. If you have other retirement income or annuities that are fulfilling your monetary needs then it’s best to hold off until the maximum amount can be received.

– Family health history and longevity. It can be helpful to examine how long you are expecting to live based on your current health and the health issues that family members have experienced in their later years, as estimating how many years may be left in your life can determine if the money should be taken sooner so it can be saved or used for possible health issues.

– Employment. Many people enjoy working and find themselves happily involved in the workforce until later in life. Staying busy like that also means income is likely coming in so taking the benefits early may not be necessary to live life to the fullest through those years.

– Health insurance. One of the biggest expenses we currently have in our monthly expenses is health insurance. If you decide to retire before full retirement age then picking up personal insurance may be necessary. If help is needed to pay those extra insurance costs then taking the Social Security benefit early would be a reasonable way to cover some of that expense.

– Investment strategy. Some people have incredible investment portfolios that may be accruing money much faster than what the benefits of waiting to withdraw Social Security benefits may be. While investing is risky, and there are certainly no guarantees on a return, sometimes it may be better to draw benefits earlier to apply them to other investments to maximize the benefit. Please speak to a financial advisor if this is the reason you are considering taking the benefit early to be certain it is the best way to maximize your benefit.


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