The amount of your Social Security benefits can vary greatly depending on the decisions you make. In particular, the age at which you choose to apply for benefits can have a particularly profound impact on the amount of money you get back. In fact, you could potentially increase your monthly payment up to $1,830 per month just by being smart about the timing of your first payment.
A delayed claim can have a huge impact
You become eligible for Social Security benefits at age 62. But if you want the biggest monthly check possible, you’ll have to delay applying for benefits much longer.
While the maximum monthly Social Security check at age 62 is $2,364 in 2022, the maximum monthly benefit at age 70 is $4,194 per month. A few quick calculations show that a delay of eight years before claiming benefits ends up increasing the amount of your check by $1,830 per month.
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Why does this happen? It’s because of the way Social Security is designed.
Seniors have the choice of retiring and claiming benefits at a younger age or at an older age. But the goal of Social Security is to equalize the amount retirees receive, regardless of when they actually receive their first check. Consequently, a system of penalties for early notification and deferred retirement bonuses applies.
Each retiree is assigned a full retirement age (FRA) based on their date of birth. Those who apply for their FRA get their standard benefit, which is calculated as a percentage of inflation-adjusted earnings over the 35 years they’ve earned the most money in their career.
However, anyone who starts verifications before the FRA is hit with monthly early filing penalties. And anyone who starts collecting checks after FRA can earn deferred retirement credits that increase their monthly payments.
If you apply for Social Security at age 62, your maximum benefit will be much smaller because you will be hit with deferred retirement credits for each month between age 62 and your FRA. If your FRA is 67, this early claim will reduce payments by 30%. On the other hand, if you wait until age 70, you’ll maximize your deferred retirement credits and be on your way to a much bigger benefit – up to $1,830 more.
How much can you increase your profit by delaying?
An $1,830 increase in your Social Security check is the biggest possible benefit increase you can get by delaying. It is only available if you were on track to receive the highest possible standard benefit.
You would be on track for this only if you earned the maximum income subject to Social Security tax each year. Many people don’t have such substantial incomes, so the actual amount you can increase your benefit check is based on what your own standard benefit would be.
Say, for example, you were on track to get a Social Security payment of $1,600 at the full retirement age of 67. If you claimed it at age 62, you would reduce that $1,600 by 30% and receive a monthly benefit of $1,120. But if you waited until age 70 and maxed out your deferred retirement credits, you’d get a payout of $1,984. Your check would therefore be $864 higher. It’s still a huge increase.
You can find out your standard benefit estimate by looking at your mySocialSecurity online account, then use that information to determine how much a delayed claim would increase your checks.
Remember, however, that when you defer claiming benefits for eight years to increase future payments, you are giving up much of the potential income you could have received. Be sure to calculate how long it will take to break even by estimating how many months of higher checks it will take to make up for the income you have missed. This can help you make the right choice about the best time to claim your benefits.
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