Definition of Deferred Retirement Benefits and an Example of That
How do Deferred Retirement Benefits work?
Other Considerations for Deferred Retirement Benefits
Are Deferred Retirement Benefits Worth It?
What are Deferred Retirement Benefits?
Deferred retirement benefits are an increase in the amount of benefits due for your Social Security. You earn deferred retirement benefits by waiting until after your full retirement age. Many retired couples and individuals use these Social Security incentives to increase their retirement income.
What are Deferred Retirement Benefits?
The amount of Social Security you receive depends on your full retirement age and the age at which you retired. Full retirement age is based on the year you were born. If you start receiving benefits before reaching full retirement age, you will receive reduced benefits. If you claim benefits after full retirement age, you will receive increased benefits.
How do Deferred Retirement Benefits work?
The Social Security Administration is the government agency responsible for establishing rules and regulations and administering benefits to millions of Americans. The Social Security program supports retirees, disabled individuals, children, widows, and widowers.
For many people, deferred retirement benefits in Social Security serve as a financial incentive to continue working. If you choose this route, you will receive a higher monthly income while simultaneously boosting your total lifetime payouts. Benefits increase by a small percentage for each month you delay receiving them past full retirement age until age seventy. The annual increase ranges from 3% to 8%, depending on the year you were born.
Other Considerations for Deferred Retirement Benefits
There are other rules to keep in mind if you plan to delay your retirement:
- If you retire before age seventy, you will not receive all the benefits in one lump sum – you will have to wait until benefits start in January after your eligibility begins.
- If you wait until you turn 70, you will receive all your benefits immediately. It is advisable to enroll in Medicare when you turn 65, even if you do not plan to retire at that time. If you delay, you may face delayed or more expensive coverage.
- You must be “insured” under the Social Security program by the time you reach normal retirement age, meaning you have earned enough credits from work. If you have already started your benefits but have not yet turned 70, you can suspend your Social Security benefits and collect deferred retirement benefits.
Are Deferred Retirement Benefits Worth It?
Benefit increases stop at age seventy, so there is no reason to delay Social Security after that. But you may wonder whether you should wait a year or two to increase your retirement income.
The answer: it depends. Accumulating deferred retirement benefits can be a good strategy if your circumstances allow it.
Start by assessing how much you already have in retirement savings. If the amount in your retirement savings is not what you want, waiting for a higher benefit could help offset a smaller IRA or 401(k). On the other hand, if you do not need the benefits now (i.e., you have other income) but would like to enjoy a higher rate later, you might also consider waiting.
Couples can strategically use deferred retirement benefits to increase the benefit amount for the higher-earning spouse while utilizing the lower-earning spouse’s benefit to cover living expenses. This strategy secures the highest benefit for the surviving spouse in the event of the higher earner’s death.
For individuals who do not feel capable of working anymore, or cannot find a job, or have health conditions that limit their ability to work, delayed retirement may not be an option.
Can
A financial advisor can assist you in assessing your situation and identifying the best option for you.
Key Takeaways
Social Security offers delayed retirement credits for individuals who retire after reaching full retirement age. The amounts of the benefits gradually increase the longer you delay past full retirement age, up to age seventy. Delayed retirement credits can be a financially beneficial strategy for retirement, but it may not be feasible for everyone.
Source: https://www.thebalancemoney.com/delayed-retirement-credits-5211794
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