Finance / Your Social Security Advisor

Ask Rusty: Delayed Retirement Credits

social-securityDear Rusty:  I have delayed taking my Social Security retirement benefits for about 3 years past my full retirement age. I now want to start collecting benefits and am confused about the benefit calculation if I start midyear.  Yesterday, I went to the Social Security office and applied and was told I would receive $1,000 month (to make up a number) starting in November and again in December, and then in January the amount would increase to $1070.  Looking at the award letter online today, it is only showing the $1,000 starting in November.  A long call to Social Security did not result in the person saying the amount would increase in January so I suspended my claim. Looking further online it appears the $1,000 amount was the benefit as of January 2017, 10 months ago.  Searching the Social Security website seems to say the benefits increase on a monthly basis, not annually – but the $1,000 is an annual calculation from 10 months ago. There is no verbiage talking about what happens if a person delays collecting and then sometime before he turns 70 starts to collect.

So the question is: If I do start receiving the January 2017 amount of $1,000 in November, will Social Security do an adjustment for future payments in January of 2018 for the 10 months from January to October?  Or am I stuck with the reduced $1,000 forever?    Signed:  Uncertain

Dear Uncertain:  You haven’t given me your birthdate, but from what information you’ve provided I believe it to be January 1948, which means that your full retirement age (FRA) for Social Security purposes is 66.  Since you did not apply for Social Security at your FRA, you have been building Delayed Retirement Credits (DRCs) at a rate of 8% per year, which means that as of January 2017, you were entitled to 124% of the benefit you were due at FRA.  You are correct that DRC’s are earned monthly and the increase rate is 2/3 of 1% per month, so by November of 2017 you would have accrued an additional 6% DRCs for a total of 130% of your Primary Insurance Amount (or “PIA”, the amount you were entitled to at your FRA).  However, since Social Security only re-computes benefits to apply DRCs in January of each year, you wouldn’t actually receive a benefit increase for that extra 6% of DRCs until January 2018.  In other words, Social Security does not pay DRCs retroactively.

If you are correct that your benefit amount for January 2017 was $1000, by doing the math we calculate your Primary Insurance Amount (the amount of your benefit at age 66) to be about $807 and your benefit amount starting in either January or November of 2017 at about $1000, or 124% of your PIA.  Since as of November you have actually accrued 130% in DRCs, you will get the additional 6% DRCs starting with your January 2018 benefit (paid in February 2018) for a total of $1,049 (130%).  If you instead wait until you are age 70 to start benefits in January 2018, the amount would be 132% of your PIA, or about $1065 ($807 x 132% = $1065).  Our figures do not allow for any COLA increases.

So if you did start your benefits in November 2017 your benefit then would be the same as it would have been in January 2017, because DRCs are only applied to benefits in January of each year.  Then in January 2018 your benefit amount would be recomputed to add the additional 6% DRCs you accrued from January – October 2017. The exception to this rule is that earned DRCs are immediately applied to your first benefit payment in any month when you apply for benefits at age 70.

The information presented in this article is intended for general information purposes only. The opinions and interpretations expressed are the viewpoints of the AMAC Foundation’s Social Security Advisory staff, trained and accredited under the National Social Security Advisors program of the National Social Security Association, LLC (NSSA). NSSA, the AMAC Foundation, and the Foundation’s Social Security Advisors are not affiliated with or endorsed by the United States Government, the Social Security Administration, or any other state government. Furthermore, the AMAC Foundation and its staff do not provide legal or accounting services. The Foundation welcomes questions from readers regarding Social Security issues. To submit a request, contact the Foundation at [email protected].

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2 years ago

OMG, so much left-out information from Social Security. Thank you, thank you, thank you for clearing this up!! Exact thing happened to me.

4 years ago

What about the increase in PIA while working at a higher income rate after retirement? Doesn’t the PIA increase due to the higher income in those last years of employment? How is that gain in PIA handled…..or is it?

4 years ago

I think there is something else to consider here. An increase in the monthly payment is a nice thing, but there is something even more important than that. In November and December, the payment will be $1000 for each month – that is $2000 total. Deferring the payment until January may result in an extra $16 per month, but it will be at the cost of losing $2000. To get back that $2000, that means you have to collect the increased amount for 2000 divided by 16 months – that is 125 months (10.5 years).

In my opinion, it makes no sense to defer for 2 months – in fact, it made no sense at all to defer for 10 months, because waiting those 10 months has resulted in the loss of $10,000, just to get an extra $16 per month. It could be that the calculation isn’t quite as simple as that, but it will be close – and you can never make up the loss of $10,000 – unless you live another 50+ years

That is why I didn’t hesitate to take my retirement 2 years early, once I worked this out.

Ray Breneman
4 years ago

Is AMAC working to stop Social Security benefits from being taxed?

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