Want to increase your Social Security retirement income by 25% or more? Simply wait to apply for benefits and you will accumulate delayed retirement credits, which result in a permanent increase in your benefits of five to eight percent a year.
Social Security research shows delaying the start of your benefits works well for both singles and married couples, particularly in low interest rate environments. And if married, this permanent increase becomes the survivor benefit payable for as long as either of you should live. This can serve as a powerful form of life insurance for a long-lived spouse who had less earnings than you.
How Do Delayed Retirement Credits Work?
The amount of Social Security you receive is based on your full retirement age (FRA) which varies based on the year you were born. If you claim before you reach FRA you get less. However, once you reach full retirement age, your benefits do not cap out. As a matter of fact for each year after FRA that you delay taking benefits, you will accumulate a permanent increase in your benefits of 5-8% a year up until your age 70. The amount of the increase depends on the year you were born.
You can find out exactly how much of an increase you would receive by using Social Security's online calculator, which shows you the effect early or delayed retirement will have on your benefits.
This strategy works particularly well for couples who use it to boost the highest earner's benefit amount. For a couple, once both are receiving benefits, when the first person passes, the lower benefit amount drops off, and the higher benefit amount continues for the lifetime of the surviving spouse. When the higher earner waits until age 70 to begin benefits this ensures the maximum amount of survivor benefit possible will be paid out.
Bonus Strategy Ended April 30th, 2016
For some couples, up until April 30th, 2016, one spouse was able to file and suspend at their full retirement age, allowing the other spouse to file a restricted application for spousal benefits at their full retirement age. This worked if the spouse filing the restricted application had already reached FRA and was born on or before January 1, 1954.
The spouse who files and suspends would let their own benefit accumulate delayed retirement credits and switch to this higher amount when they reach age 70. The spouse who files the restricted application would do the same, switching to their own benefit when they reach 70.
Unfortunately, new Social Security rules that were signed into law in November 2015 mean that the file and suspend strategy will only work for those who were able to suspend benefits on or prior to 4/30/16. These new rules also mean that anyone born on or after January 2, 1954 cannot file a restricted application (unless they are a widow or widower.)
The new rules do not change the effect of delayed retirement credits. It still makes sense for married couples to coordinate in order to get the highest survivor benefit possible. Delayed retirement credits are what makes this work. It still makes sense for singles to look for ways to protect their income well into their later years. Delaying Social Security is one of the most effective ways to accomplish this goal.