Social Security and delayed retirement credits

[question everything]

From the WSJ Encore column

Q. My question is about Social Security and delayed retirement credits. I thought my benefit would increase each month that I wait to file for Social Security beyond my full retirement age. But when I claimed benefits in August, at age 68½, my check didn’t include the delayed retirement credits for this year. Did someone at Social Security make a mistake?

A. There’s no mistake. This is yet another quirk in the Social Security program. But hang in there—you should see your full credits soon.

Delayed retirement credits are, in effect, a bonus that the Social Security Administration pays you if you delay claiming benefits beyond your full retirement age (the age when a person can first collect an unreduced benefit). For each month you delay, your benefit increases two-thirds of 1%. Example: If you’re eligible for a benefit of $2,000 a month at a full retirement age of 66, your payout will increase $13.33 for each month (until age 70) that you wait to file for Social Security. But…here’s the wrinkle: When you eventually claim your benefit, you won’t see all of these credits in your monthly payout—at least not at first. Rather, you receive the credits in two stages. (And bear with me.)

First, you receive all of the credits that you earned through December of the year prior to the year in which you first file for Social Security. Then, any credits that you earned during the year you first claim benefits are applied the following January to your monthly payout.

Let’s use your situation. Let’s say you were eligible for a monthly benefit of $2,000 in February 2018, the month you turned 66. If, as you note, you first claimed Social Security in August 2020, your first payout would have included all the delayed retirement credits you earned through and including December 2019. That would be 23 months (February 2018 through December 2019) and $13.33 for each month, or $306.59. Which means that your first payout after filing for benefits would have been $2,306.59. (To keep things simple, I’m not including cost-of-living adjustments.)

Then…next month, January 2021, the Social Security Administration would apply the delayed retirement credits you earned in 2020: seven months (January through July) and $13.33 for each month, or $93.31. Which means that your monthly payout would increase to $2,399.90. And that figure would reflect—finally—all of your delayed retirement credits.

Note: These rules do not apply, thankfully, to people who first claim Social Security at age 70. Such individuals receive all their delayed retirement credits immediately, in their first benefit check. They aren’t made to wait until the following January.

https://www.wsj.com/articles/forced-to-retire-it-might-not-be-as-bad-as-you-fear-11607007600 (subscription)