Q & A: July 2021

How Much Would Delaying Retirement After Full Retirement Age Increase My Benefit?

Q:  How much would delaying retirement benefits after my full retirement age be worth?  I turn 66 in August. 

A:  Data indicates that many, if not most, retirees, leave a significant amount of Social Security income on the table because people tend to retire too soon.  Consider this:  even when you reach your full retirement age, that only represents the point at which you are entitled to start full benefits without reduction for starting benefits early.  It does not represent the age at which you would receive the maximum benefit amount, which is age 70.  The reward for work and patience can pay off significantly.  Once you reach your full retirement age, Social Security benefits are increased by 8% per year (or 2/3 of 1% per month) until age 70.

This higher starting benefit will mean higher cost-of-living adjustments (COLAs) in terms of dollars, and higher benefits for spouses and survivors that are based on your benefit.  Over the course of a 25 year retirement, the extra money adds up to more income from Social Security, often in the tens of thousands of dollars depending on the age you retire.

The Social Security Administration (SSA) website provides free calculators which are somewhat useful to estimate retirement benefits, but they don’t provide guidance on when to claim your benefit.  These calculators require you to input information, and you will receive rough estimates.  A much more useful estimate with less work can be obtained when you set up your “my Social Security” account.  You can receive benefit estimates based on your own earnings records that the SSA actually has on file for you.  Still, these estimates lack the most recent earnings information, and don’t give you a monthly estimate if you were to retire mid - year.

There are three factors that affect your final benefit amount:

  1. Your total earnings, including your earnings now until you stop working.
  2. The age at which you stop working.
  3. The age at which you start receiving Social Security benefits.

Earnings are vital to the amount you receive because your wages form the basis of your Social Security benefit.  SSA calculates your benefit based on your highest 35 years of earnings.  When you sign up for a “my Social Security” account, the estimate will list every year of earnings on file.  Count them up!  Ideally you will have more than 35 years of earnings.  But that may be hard for some workers to achieve, particularly those who spent time at home raising a family or providing caregiving for older family members (often women).

One important factor to consider is the ability to receive benefits and work at the same time without reduction once you have reached full retirement age.  The additional income could mean you would pay somewhat more taxes, but it may also be a way to save more earnings for retirement, or, for major investments like repairs and maintenance to retrofit a home for retirement or to replace an aging car.

The age at which you start receiving full Social Security benefits varies depending upon the year you were born.  For people like you who turn 66 in 2021, your full retirement age is 66 and two months.  For more retirement planning information visit www.SocialSecurity.gov.