Electing Delayed Social Security Retirement Benefits – Part 2

Your delayed retirement credit isn’t counted toward your family maximum

When you retire, your family may be eligible to receive benefits based on your PIA. These benefits may be limited by the family maximum, which generally ranges from 150 to 180 percent of your PIA. However, if you delay receiving retirement benefits, your delayed retirement credit won’t count toward your family maximum and can be paid whether or not your family’s benefits are limited by the family maximum.

Tradeoffs

Delaying retirement won’t necessarily increase your lifetime retirement benefit

Just because you receive a higher monthly benefit when you delay retirement doesn’t necessarily mean you’ll receive a higher overall lifetime benefit. If you delay receiving retirement benefits, the amount of each benefit check will be higher, but you’ll receive fewer benefit checks than

you would have if you begin receiving retirement benefits at normal retirement age. How many fewer checks you receive will depend upon how many years you delay receiving retirement benefits.

For example, assume the following facts apply to you:

You delay retirement by 4 years, and retire at age 70 instead of at age 66, making you eligible for an 8 percent delayed retirement credit for each year you delay retirement. You will receive 48 fewer benefit checks.

Your PIA is $1,000, so if you retire at age 66, your annual benefit will be $12,000. If you retire at age 70, your monthly benefit will be increased by $320, so your annual benefit will be $15,840.

Assume that even if you’ve saved or invested all or part of your benefits, your real rate of return is 0 percent.

Using these factors, it would take you more than 12 years from the time you retire at age 70 to reach the point at which your benefits would crossover with the amount you would have accumulated if you began receiving benefits at age 66 (does not take into account annual cost of living increases)

If you were to die before reaching this crossover point, your lifetime benefits would be lower than if you had retired at your normal retirement age. Conversely, if you were to die after reaching this crossover point, then your lifetime benefits would be higher. That’s why life expectancy is one of the factors to consider when deciding whether to delay receiving Social Security retirement benefits.

The delayed retirement credit won’t increase benefits paid to most family members

When you earn the delayed retirement credit, your retirement benefit will increase. However, because the delayed retirement credit doesn’t affect your PIA, benefits that are paid to family members won’t increase (unless you die, at which time your surviving spouse may receive the same benefit you were receiving).

Example(s): Adam’s PIA is $800, and he is eligible to receive a delayed retirement credit of $24 when he retires at age 68, so his total retirement benefit will be $824. When his wife, Eve, retires at normal retirement age, she will receive a monthly benefit equal to 50 percent of his PIA, or $400. However, she will receive no extra benefit because Adam delayed his retirement.

By this Age Accumulated Benefit if Retirement Age is 66 Accumulated Benefit if Retirement Age is 70 (32% credit has been earned)

70 $ 48,000 $0

76 $120,000 $95,040

82 $192,000 $190,080

83 $204,000 $205,920

Article courtesy of Forefield.Securities offered through NPB Financial Group, LLC.

A Registered Investment Advisor/Broker-Dealer Member FINRA, MSRB, and SIPC