$450 Social Security Increase: While many retirees anxiously await annual Cost of Living Adjustments (COLA) to boost their Social Security benefits, there’s a powerful alternative strategy that could increase monthly payments by up to $450. This approach, known as delayed retirement, offers retirees a way to substantially increase their benefits through strategic timing of their claims.
Understanding the Delayed Retirement Strategy
The concept is straightforward but powerful: instead of claiming Social Security benefits at Full Retirement Age (FRA) or earlier, retirees can choose to delay their benefits up to age 70. For each year of delay beyond FRA, benefits increase by approximately 8%. This can result in a significant boost of around $450 per month for those who wait until age 70 to claim.
For perspective, consider that the average Social Security recipient currently receives about $1,919 monthly. By delaying benefits until age 70, this amount could increase to approximately $2,380 – a substantial difference that could significantly impact retirement lifestyle.
How the Delay Strategy Works
The process of delaying benefits involves several key steps:
- Identify your Full Retirement Age (FRA), which is typically between 66 and 67, depending on your birth year
- Choose to delay claiming benefits past your FRA
- Earn delayed retirement credits of two-thirds of 1% for each month of delay
- Claim benefits by age 70, when the delayed credits stop accumulating
Even if you’ve already started receiving benefits, you might still have options. Recipients who have reached FRA but are under 70 can suspend their benefits, allowing delayed retirement credits to accumulate until they restart payments.
A Real-World Example
Consider the case of Susan, a 67-year-old retiree eligible for a $1,919 monthly benefit. By choosing to suspend her benefits until age 70, her monthly payment grows to $2,380. Over a 15-year period from age 70 to 85, this decision results in total payments of $428,400, compared to $414,504 if she had continued receiving benefits at 67. The difference? An extra $13,896 in lifetime benefits, despite forgoing payments for three years.
Who Should Consider This Strategy?
The delayed retirement approach isn’t suitable for everyone. It works best for:
Ideal Candidates:
- People with other sources of retirement income
- Individuals in good health with a family history of longevity
- Couples where one spouse had significantly higher earnings
- Those who can afford to wait for larger payments
Less Suitable For:
- People with immediate financial needs
- Individuals with health concerns or shorter life expectancy
- Those without other sources of retirement income
- People who need the money now rather than later
Important Considerations
Before deciding to delay benefits, consider several key factors:
- Health and Life Expectancy
- Your current health status
- Family history of longevity
- Lifestyle factors affecting life expectancy
- Financial Situation
- Other sources of retirement income
- Current savings and investments
- Monthly expenses and financial needs
- Spousal Benefits
- Impact on survivor benefits
- Coordination with spouse’s claiming strategy
- Overall household income optimization
Making Your Decision
To determine if delaying benefits is right for you:
- Calculate your break-even point (when larger delayed payments exceed what you would have received by claiming earlier)
- Assess your current and future financial needs
- Consider your health and family history
- Evaluate other income sources
- Consult with a financial advisor for personalized guidance
The Long-Term Impact
While delaying benefits requires foregoing payments in the short term, the long-term financial impact can be substantial. For those who live into their mid-80s or beyond, the strategy often results in significantly higher lifetime benefits. Additionally, the increased monthly payment provides greater financial security in later years when other resources might be depleted.
Conclusion
The decision to delay Social Security benefits is a personal one that depends on individual circumstances. While the potential $450 monthly increase is attractive, it’s essential to carefully evaluate your situation before making this choice. Consider consulting with a financial advisor who can help assess whether this strategy aligns with your overall retirement plan.
Remember that while COLA adjustments are automatic, this strategy requires active decision-making and planning. For those who can afford to wait and expect to live a long life, delaying benefits could provide valuable financial security in their later retirement years.
