Today we’re taking about delayed retirement credits and how they get added to your benefit. If you plan to file after your full retirement age, you may be disappointed when you get your first check because those credits aren’t added right away. Let me explain what you should expect and when to apply for benefits to minimize this delay.
Why You May Be Missing Credits
It appears that the Social Security Administration have a little trick up their sleeves. They do not add your credits immediately if you file after full retirement age. Now, this is a little puzzling to me and I’m not sure why they do this. It’s not as if they don’t have the systems in place to do the calculations. After all, if you file early, the reductions are applied immediately!
I’m going to show you how this works but let me give you a little context around this first. I often discuss the monthly reductions for filing early or increases for filing early, and understanding that is a fundamental part of today’s discussion.
You can file for your retirement benefits between the ages of 62 and 70. If we imagine the red line is your full retirement age, your benefit is increased if you file after and decreased if you file before.
The decreases are broken up into two separate bands. First, you have the 36 month period immediately prior to full retirement age where benefits are reduced by .555% per month, and then anything more than 36 months, benefits are reduced by .417%.
What Happens If I File After My FRA?
If you file after your full retirement age, your benefit will be increased by .667% for every month. These increases are referred to as delayed retirement credits.
It’s important to understand that there is a difference in how the increases and reductions are applied. If you file at any time before your full retirement age, your benefit will be calculated by these reduction amounts and immediately reduced beginning with your first check. That is not the case for the increases.
In the operations manual, you can see there are two times retirement benefits are increased for delayed retirement credits. One is in the month you attain age 70 and the other is in January of the year following the year you earned the delayed retirement credits.
Should I File Before Or After My FRA?
Let me show you an example.
Let’s assume your birthday is in February, and you hit your full retirement age. Six months later you decide to file for benefits and you receive your first check in September. You’ve probably already calculated in your head that you should receive 6 months of delayed retirement credits which would work out to 4% increase to your full retirement age benefit. When you got your first check deposited in September, it may surprise you to see the check is THE SAME as if you would have filed in February. The delayed retirement credits would be added, but not until January of the following year and then you’d see it on your February check. And you don’t receive any sort of payment to make up for those months.
One way to lessen the lag is to file later in the year. If you want to avoid this lag altogether, you could wait until your 70th birthday. Then, no matter what month it falls on, the delayed retirement credits are added immediately.
(Maybe in the future the Social Security Administration can figure out how to do this for any filing age after full retirement like they do before. It can’t be that hard, right?)
Take Action! It’s Your Retirement!
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