The Easiest Way to Get a Higher Social Security Benefit - Part 1

You probably know that the longer you delay claiming your Social Security benefit, the bigger it will be. But you may not be aware of exactly how much bigger. 

For every year you delay claiming your benefit past age 62, it is guaranteed to increase by a certain percentage. If your Full Retirement Age is 67, then for every year you delay claiming past 62, it increases by 6.67% – 8.33% until age 70. Then, you lock into that increased benefit for the rest of your life. In this low interest rate environment, a risk-free increase of 6.67% – 8.33%, is one of the best deals around.

An Example

Let’s take a look at how much your monthly benefit will increase every year you delay claiming past age 62. We will assume you have a Full Retirement Age of 67, and a monthly benefit amount of $2,000.

This chart shows the benefits amounts for every age between 62-years-old and 70-years-old. 

If you wait until your Full Retirement Age of 67, you will receive the full unreduced amount of $2,000 per month. If you claim your benefit prior to 67, your benefit will be reduced depending on how early you claim it. 

Claiming at 62 will pay the smallest benefit of $1,400. Claiming at age 66 will result in a much smaller reduction, and pay you a monthly benefit of $1,866. If you claim after your Full Retirement Age of 67, your monthly benefit will be increased. If you wait until age 70 to claim, you will receive the maximum benefit of $2,480 per month. (Please note that these benefit amounts have not been adjusted for annual COLA increases. This can significantly increase the actual benefit amounts)

Under each monthly benefit amount in the above chart, starting at age 63 and continuing until age 70, is the actual percentage increase that you will receive for delaying that additional year. If you delay claiming your benefit from age 62 to age 63, your benefit will increase by a guaranteed 7.14%. If you delay an additional year, from age 63 to age 64, your benefit will increase by another 6.67%. You will receive the largest percentage increase of 8.33% in your benefit if you delay claiming from 64 to 65. 

Common Misconception

You may have been told that your benefit will grow by a minimum of 8% per year, every year you delay claiming past your Full Retirement Age. But notice the chart. The only year you receive that 8% increase is if you delay from age 67 to age 68. Your percentage increase if you delay from 68 to 69 is only 7.41%. And it is only a 6.89% increase if you delay from age 69 to age 70. 

It even says this on the Social Security website. It states that your benefit will increase by 8% per year, every year you delay claiming past your Full Retirement Age. But that 8% increase is simple interest, not compound interest. That simple interest is applied to your age 67 Full Retirement Age benefit amount of $2,000.

The Longer you Wait, The Higher the Benefit Increase

If you delay claiming from age 67 to age 68, Social Security will increase your 67 benefit of $2,000 by 8%. That would increase your age 68 benefit to $2,160 ($2,000 x 1.08). But if you delay claiming your benefit from age 68 to 69, Social Security will still apply that 8% increase to your 67 benefit of $2,000, not to your age 68 benefit of $2,160. By delaying until 69, and the benefit increases by 8%, results in a total increase of 16% (8% x 2). Social Security applies that 16% increase to your Full Retirement Age benefit of $2,000. That increases your age 69 benefit to only $2,320 ($2,000 x 1.16). 

In this case, though, the difference between simple interest and compound interest is not that significant. If the 8% increase per year were compounded, in that case your age 69 benefit would only be $2,332 per month $2,160 x 1.08), which is only $12 per month higher than your simple interest age 69 benefit of $2,320 ($2,332 – $2,320). 

Get Paid to Wait by Delaying your Social Security Benefit

In this still low interest rate environment, delaying your Social Security benefits is one of the best deals around. Now you know how much your benefit will grow for every year you delay claiming past your Full Retirement Age. But the story gets even better.

In my next blog, The Easiest Way to Get a Higher Social Security Benefit – Part 2, I show you how Social Security’s annual COLA increases make the case for delaying even stronger.