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Why Social Security's Delayed Retirement Credits Will Be Smaller Going Forward

When it comes to signing up for Social Security, you have choices. You can opt to claim your benefits at the earliest possible age of 62, file at your precise full retirement age (FRA) and get the exact monthly benefit your earnings history entitles you to, or hold off on claiming benefits past FRA and accrue delayed retirement credits in the process.

Delayed retirement credits are worth 8% a year, or two-thirds of 1% a month, and you can accrue them up until age 70. But thanks to changes in FRA, the opportunity to collect delayed retirement credits will shrink beginning next year.

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A rising FRA means fewer delayed retirement credits

Delayed retirement credits apply to benefits that are claimed once FRA has passed. For seniors born between 1943 and 1954, FRA is 66 on the nose, and so 1954 is the last birth year for which Social Security recipients have a chance to boost their benefits by 32%. Meanwhile, for those born in 1955, FRA is 66 and two months, which means the maximum boost those recipients can enjoy is a 30.66% increase. And from there, delayed retirement credits continue to diminish as FRA increases. In fact, for anyone born in 1960 or later, those credits will max out at 24%. And while that's certainly a nice bump, it doesn't have the same ring as a 32% boost.

Should you delay your Social Security filing?

Even if you can't capitalize on a full four years of delayed retirement credits, it still pays to consider postponing your Social Security filing until age 70 (to be clear, there's no sense in delaying further). Not only will that give you more money to work with on a monthly basis, but if you expect to live a long life (say, because your health is great going into retirement or you have a family history of longevity), it could result in a higher total lifetime payout as well.

It especially pays to look at delaying your benefits if you don't have much in the way of retirement savings. Though Social Security is only meant to replace some of your pre-retirement income, not all of it, a higher monthly benefit can help compensate for a minimal IRA or 401(k) balance. Similarly, growing your benefits by delaying them could help make retirement more enjoyable. You may not need a higher benefit than what you'll get at FRA to pay your essential bills, but if that extra money makes it possible to travel more often or indulge in nightlife and fine dining, it's worth getting your hands on.

Remember, too, that if the idea of delaying your Social Security filing all the way until age 70 seems undoable or less than ideal, you can compromise by holding off for a year beyond FRA, or two years. Any boost you snag for your benefits will remain in effect for the rest of your life, and a seemingly small increase could, over time, go a long way.

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