What does it mean to defer your Social Security? Do you benefit by delaying your Social Security payment? Well there is no right or wrong answer for that as everyone’s situation is different but on average you will be better off if you can delay the payments.
There are three ages in Social Security that are important and ones that you need to be aware of if you will be a recipient. The first is 62 which is the earliest you would be able to get a Social Security payment provided you worked the required quarters or about a total of ten years. The second is your full retirement age (FRA) which for those born after 1960 is 67 years of age and for those born prior to 1960 it is between 65 and 67 depending on what year and month you were born. And the third age is 70 which is the age in which no more benefits will be obtained by deferring your payments.
So how do these three ages affect your payments? Well if you claim Social Security at age 62 your monthly payment will be reduced as your payments in theory will last longer. If you wait until your full retirement age you will receive your full payment as calculated by the Social Security Administration based on what you averaged for the highest thirty years of your work history based on your tax returns. And if you delay your payments from age 67 to 70 you will get an extra eight percent a year more for every year you delay the payments. That means if you wait the full three years your payment will be 24% more than it would have been at age 67.
As people are living longer and longer every year many people are indeed working to their full retirement age and in many instances beyond that depending on their job and health. But regardless of when you take your re talking about thousands of dollars more that you will receive compared to taking the payments as soon as you reach age 62.
And when you consider that Social Security will be adjusted for inflation working or delaying your payments until age 70 can mean you will be receiving some fairly substantial monthly checks from Social Security. While inflation adjustments are not guaranteed they are approved by Congress and are now tied to the inflation index or Consumer Price Index. However, the Obama administration wants to peg the Cost of Living Adjustments or COLA to an index that will provide lower COLA adjustments going forward for all recipients.
Just because you are nearing the age that you can receive Social Security does not mean that you should start receiving your payments. This is an area that can be complex if you are married and one person was the predominate wage earning and the other may have been a stay at home parent. In that case the primary wage earner. Social Security payments the breakeven point is right at age 80. Meaning if you live well into your 90’s you can file for Social Security as well as the spouse and then suspend their payments allowing the stay at home partner to collect about 50% of the primary wage earner’s Social Security payment while theirs continues to accrue and increase in payment value. In these instances it is wise to seek the guidance of a financial advisor or someone who is very knowledgeable in Social Security payments.
