What Are Delayed Retirement Benefits?
You waited for so long. All those years of hard work sometimes felt like they would never end, but the end is in sight. You’re ready for retirement.
Wait – not so fast! If you retire and apply for your social security benefits at the first moment it’s possible, you’ll end up getting paid less than if you can hold off for a few more years.
Delayed Retirement Benefits 101
From the age of 66, seniors in the United States have the option of applying for social security. After years of paying into social security, you can finally start to get paid back, with payments averaging $1,287 per month, but potentially reaching up to $2,663 if you earned enough during your working years to pay the maximum amount in your taxes.
That’s if you apply right at the moment you become eligible though. If you wait, the numbers go up. For every month you hold off on that application, you’ll earn delayed retirement benefits that tack a little bit onto the monthly amount you’ll be paid.
At 6 months, you’ll get 4% more. At a year, that moves to 8% more, and on up until the age of 70. For those that wait until 70 to apply, the difference in payments will be 32% higher. Even better, the increase you receive will be adjusted for inflation.
As such, experts are pretty clear on the recommendation that waiting to receive social security will pay off more than putting a comparable amount of money into the stock market for those years. It’s basically the best investment you can make.
But What If I’m Ready?
Just to be clear, this doesn’t mean you have to wait to retire, if you have enough in your retirement accounts or a healthy enough pension to float you for a few years before you apply for social security, you can go ahead. But make sure you do your math right.
The general rule of thumb is that people should budget for their retirement years to cost about 70-80% of what they spend while working. But many retirees end up spending more. If your dream has always been to see the world once you retire, or you want to go back to school, or take on a costly hobby – don’t discount how much that will cost you.
For some retirees, the lowered annual amount is simply worth the tradeoff of not having to work any more. How do you measure some extra money each month against the freedom to spend your time the way you want to?
Before you put in that application, take time to think through whether or not the extra money you could get makes the extra years of waiting worth it. The math has been done. Delayed retirement benefits are a great deal. If you’re in a position where you’re able to wait, then it’s definitely a smart choice.
But if you know you’re really ready for retirement and are willing to forego the extra cash to start sooner rather than later, as long as you take the time to think the decision through, then only you can decide what’s right for you.