When you’ve done all the numbers and are certain about household cash flow, don’t be surprised if your initial benefit check from Social Security is not what you expected. Not to worry: it’s won’t be that way forever.
The rules about when to start taking Social Security benefits are confusing to many. For people who file for benefits after their FRA (full retirement age) but before they turn 70, a surprise comes when their initial benefit checks are smaller than they had anticipated.
Delayed-retirement credits increase Social Security benefits each month after you reach full retirement age (66 for those born between 1943 and 1954). If you accumulate the maximum credits by waiting until age 70, your first check will be for the full amount of those credits. However, if you claim your benefits prior to age 70, the size of the first check will be less and it won’t include the full power of the credits you’ve earned.
But according to Kiplinger’s article, “Why Your First Social Security Check May Be Smaller Than Expected,” your disappointment won’t last forever. Each month after your full retirement age that you postpone receiving benefits earns you a credit of 2/3 of 1% of your benefit. That’s an 8%-a-year increase. Credits start the month you hit full retirement age and end no later than the month before you hit age 70. Therefore, those with a full retirement age of 66 can earn a maximum boost of 32%. If you delay until you have the whole 32%, you’ll get the full credit for the boost in your first check at age 70.
However, if waiting to age 70 isn’t going to work for you, whenever you claim, you’ll get the delayed credits earned up to that point. This means some of your credits won’t be effective until later. The credits aren’t part of the benefits until the January after the credits are earned, if you claim before age 70. As a result, if you take your boosted benefit in your late sixties, all credits earned in previous calendar years will be included in your first check. However, credits earned in the current year won’t count until the next January.
Don’t let the details cloud the value of delaying your claim. Social Security is an inflation-adjusted income that won’t be outlived, so the larger the initial benefit, the better. This is especially important, if you or a spouse are expected to live a long time.
Remember that for couples, the higher earners’ benefits last the lifetime of the surviving spouse. When the first spouse passes, the smaller benefit disappears. If the higher income earner can continue to work longer and increase their benefit, it can be helpful for the surviving spouse. For those who are single and can wait until their 70th birthday, their Social Security payments will continue, as long as they live.
Reference: Kiplinger (February 2017) “Why Your First Social Security Check May Be Smaller Than Expected”