Postponing Social Security Payments Yields Larger Benefits. Strategies to Facilitate Delay
Maximising Your Social Security Benefits: The Advantages of Delaying Retirement
Delaying the retirement of Social Security benefits can lead to increased monthly payments and a more secure financial future in retirement. Here's why:
If a person hasn't worked for 35 years, the Social Security Administration credits zero dollars' worth of income for each year less than 35 that they worked. However, delaying Social Security retirement benefits can be beneficial as they grow by about 8% for each year you postpone claiming after your full retirement age (usually 67), until age 70. This is known as "delayed retirement credits," which boost the base amount of your Social Security check permanently.
There are several advantages to delaying Social Security retirement benefits:
- Increased Monthly Income: Waiting until age 70 can significantly raise your monthly benefit compared to claiming at 62 or even full retirement age. This results in more income throughout retirement, especially as benefits are adjusted for inflation (cost-of-living adjustments).
- More Effective Use of Delayed Retirement Credits: By continuing to earn income and not claiming benefits early, you maximise the growth of your future Social Security payments and avoid the reductions that come with early claiming.
- No Earnings Limit After Full Retirement Age: If you claim before full retirement age and continue working, your benefits may be temporarily reduced due to earnings limits. But if you delay until or after full retirement age, there are no limits on earnings, allowing you to work longer without benefit penalties.
- Creating a "Bridge Strategy": You can use other income sources or savings to cover expenses until age 70, allowing you to delay Social Security and benefit from the higher income when you do claim.
However, it's important to note that delaying Social Security benefits is most advantageous for those with longer life expectancies, as early claiming reduces monthly benefits for life and the extra payments from delaying accumulate over time. For those with shorter life expectancy or immediate cash needs, early claiming might be appropriate.
It's also crucial to consider one's overall mental and physical well-being before continuing to work. Life's realities like health issues or expenses can make it difficult to delay Social Security retirement payments.
In summary, delaying Social Security benefits by working longer and claiming up to age 70 maximises your monthly and lifetime benefits, offering greater financial security in retirement. However, it's essential to plan for continued work past the age when many people retire and to consider all factors before making a decision.
Personal finance strategies involving retirement should include the consideration of delaying Social Security retirement benefits. Delaying benefits until age 70 can provide a substantial increase in your monthly income through permanent delayed retirement credits and a more secure financial future in personal-finance terms.
