Collecting Social Security: 5 Reasons it Can Pay to Delay

04.14.2021 - John S. Traynor, CFP, CPWA

More than 3 million Americans started receiving Social Security retirement benefits for the first time in 2019, bringing the total number of recipients to more than 45 million last year.1 As baby boomers retire, that number is increasing rapidly, which poses several important questions, including:

  • How does someone qualify for Social Security?
  • Is it better to begin collecting a reduced annual Social Security benefit as early as possible, age 62, or wait for the maximum amount?
Delaying Can be Financially Rewarding

To qualify for Social Security retirement benefits, you must have earned at least 40 Social Security “work credits.” One credit is equal to three months of work, or a quarter of a year. That means if you worked ten years (40 quarters) during your lifetime, you are eligible to receive Social Security when you turn 62. You can apply as early as four months before your 62nd birthday.

However, while it’s possible to begin collecting at 62, it can pay to delay, depending on your circumstances. Here are five reasons why.

Five Reasons to Delay Collecting Social Security
1. Your Monthly Payment Will Be Larger

If you start collecting Social Security before your “full retirement age,” which is based on the year you were born (see table), the monthly payments you receive will be less than your full benefit amount. But you can receive 100% if you wait until you reach your full retirement age to start collecting. For example, if you were born in 1955, you will become eligible for 100% of your retirement benefits two months after you turn 66.

And if you can afford to wait a few more years past your full retirement age, you could collect an even larger amount each month. Your benefit will increase by 8% every year until you are 70. So, instead of collecting 100% of your benefit at age 66, you will collect 132% beginning at 70—and for the rest of your life. While it is possible to postpone benefits past 70, waiting any longer doesn’t offer additional financial benefits.

Full Retirement Age for 100% of Your Social Security Benefits

Source: Social Security Administration. If you were born on January 1, refer to the previous year for your full retirement age.

2. You Might Live Longer Than Expected

Delaying benefits and locking in a higher monthly payment usually makes sense if you are in good health and expect to spend many years in retirement. You might need that income later in life. Of course, it’s impossible to know exactly how long your retirement might last. But your current health and your family’s history of longevity might offer some guidance. Studies also have shown that household income and education levels influence longevity.

Keep in mind that your Social Security payments might seem relatively insignificant at first glance. But they are periodically adjusted for inflation and can really start to accumulate. For example, let’s say you turn 62 years old, start collecting $1,750 every month (increased 2.25% annually for inflation) and live long enough to celebrate your 90th birthday. This table shows just how dramatically your decision about when to start collecting benefits, combined with your lifespan, can affect the total value of those monthly payments over time.

The bottom line: Filing early means you receive more monthly payments over a longer period but puts considerably less money in your pocket if you live longer than expected.

Total Current Value* of Benefits

*Current value determined based on a discount rate equal to the assumed inflation rate of 2.25%

3. Your Spouse Could Receive Larger Benefits

When one spouse dies, the other receives the larger of the couple’s two Social Security retirement benefit amounts—and benefits are based on earnings. So, if you earned more than your spouse during your working years, all other things being equal, you’ll receive a larger payment than your spouse in retirement. As previously mentioned, postponing Social Security until you are 70 results in an even larger monthly payment. If you die, that’s the payment your surviving spouse will receive.

Here’s how the “survivor benefits” process works: First, surviving spouses receive any benefits they might qualify for on their own. Then they collect additional payments that bring their payment up to the level their spouse was collecting.

Surviving spouses receive this benefit even if they never worked outside the home or paid Social Security taxes. Under certain conditions, a divorced person also may qualify for survivor benefits based on an ex-spouse's qualifications and work history.

4. You Could Make Up for a Low-Income Year

Your benefits are based on your income during the 35 years you posted your highest earnings. But when the Social Security Administration (SSA) tallies up these annual earnings, it caps them at a specific amount ($144,000 in current dollars for 2021).

If your income for one of those years falls significantly below the threshold, you might make up for it by delaying your retirement benefits, working, and possibly replacing that lower-income year with income above $144,000. This could boost your benefits.

If you were born in 1960, you qualify for full retirement benefits at age 67. But if you wait until you are 70 to start collecting and you continue to work, you’ll have three more years to possibly improve your average earnings.

5. Benefits Are Slashed if You Collect Early and Work

If you continue to work while collecting social security before your full retirement age, your benefits are reduced up until you reach your full retirement age. If you are working, the SSA will deduct $1 for every $2 of income you earn above $18,960 (the limit in 2021). Then, beginning in January of the year you reach your full retirement age, the deduction falls to $1 for every $3 in earnings above $50,520 (the limit in 2021). After you reach your full retirement age, the deductions stop regardless of how much you earn.

We Can Help You Find the Right Path

There are many reasons to consider delaying Social Security retirement benefits, and a few good reasons to start collecting early, or right on time. Your best choice depends on your unique personal circumstances and financial life. We can help you analyze your balance sheet and identify your best options to maximize Social Security retirement benefits for you and your family.

Source: Social Security Administration “Fast Facts & Figures About Social Security,” July 2020.


Note: Social Security rules and benefits are subject to change. Before making any decisions, please contact your Fiduciary Trust International advisor.




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