If you think you might start SS after FRA but before age 70

[Independent]

you might be surprised by your first payment.

When I first read this thread http://www.early-retirement.org/forums/f28/odd-ss-payout-vs-retirement-age-graph-73457.html I said this can't be right. After all, for those of us born after 1942, we're supposed to "earn" another 2/3 of 1% of our PIA for each month that we defer. Retirement Planner: Delayed Retirement Credits

But, I was wrong. The fact that these Deferred Retirement Credits are "earned" doesn't mean that they will be in my first check. The initial payment only includes the months prior to the beginning of the calendar year in which I file for benefits.

Tadpole has an example where he files 12 months after eligibility, but only gets 2 months of DRCs. Or, if he files 24 months after eligibility, he only gets 14 months of DRCs.

As close as I can follow, the benefit is recalculated the next January, and benefits paid after that reflect all the earned DRCs. But, there is no retro-active lump sum payment for the benefits lost in the first year.

Here's a section of the Federal Register that seems to help (scroll down to "(c) When is the increase because of delayed retirement credits effective?")20 CFR 404.313 - What are delayed retirement credits and how do they increase my old-age benefit amount? | LII / Legal Information Institute

Apologies to people who posted on the earlier thread and seem to have this worked out. I was so surprised at the result that I wanted to repeat it in a thread with a more specific title.

And, thanks to a number of posters on the Bogleheads forum who provided some good information.

 

[samclem]

As close as I can follow, the benefit is recalculated the next January, and benefits paid after that reflect all the earned DRCs. But, there is no retro-active lump sum payment for the benefits lost in the first year.

If that is right, (it seems just screwy enough to be true), then picking the right filing month (Nov or December?) will reduce the amount of lost money. Filing in Jan means almost a year of improperly low payments.

 

[Independent]

If that is right, (it seems just screwy enough to be true), then picking the right filing month (Nov or December?) will reduce the amount of lost money. Filing in Jan means almost a year of improperly low payments.

Just because I can't resist being techy --

If I file very early in the year, my payments will be lower than then "should be" for 11 months. But, the missing dollars will be just 0.67% of my PIA.

If I file a month later, I'll get 10 lower payments, and the missing dollars will be 1.33% of my PIA.

Similarly, I could lose 2.00% of my PIA for 9 payments,
2.67% for 8 payments,
3.33% for 7 payments, etc.

If I'm counting months correctly, it seems the worst possible time is mid-year. Coincidentally, that's just when I was thinking I might start.

 

[Animorph]

From the last link in post #1:

"(c) When is the increase because of delayed retirement credits effective?—
(1) Credits earned after entitlement and before the year of attainment of age 70. If you are entitled to benefits, we examine our records after the end of each calendar year to determine whether you have earned delayed retirement credits during the previous year for months when you were at or over full retirement age and you were fully insured and eligible for benefits but did not receive them. Any increase in your benefit amount is effective beginning with January of the year after the year the credits were earned.
(2) Credits earned after entitlement in the year of attainment of age 70. If you are entitled to benefits in the month you attain age 70, we examine our records to determine if you earned any additional delayed retirement credits during the calendar year in which you attained age 70. Any increase in your benefit amount is effective beginning with the month you attained age 70.
(3) Credits earned prior to entitlement. If you are full retirement age or older and eligible for old-age benefits but do not apply for benefits, your delayed retirement credits for months from the month of attainment of full retirement age through the end of the year prior to the year of filing will be included in the computation of your initial benefit amount. Credits earned in the year you attain age 70 will be added in the month you attain age 70. "


So it looks like taking benefits at age 70 (or FRA or before) avoids this problem.

 

[Independent]

or, start in January of years between FRA and age 70.

 

[springnr]

Excellent followup Independent, useful information.

 

[mathjak107]

wow , now this was a thread worth reading. never realized this fact. starting in the following january from the year you intended not only gets you more delayed credits but gets you paid for the prior years credits as well which you would not see in the mid year checks.

thanks....

 

[eytonxav]

Another thank you, never realized that.

 

[springnr]

Updated my "When to take SS Table" to include the January start times. I prefer being able to see data, and tend to chart an' graft more than necessary. My B'day is mid year so Jan starts, skip me to 67.5, 68.5, etc.

Each column is compared to starting SS at 70 verses that column.
Positive % then starting early is better.
The blue/green areas show break even or close enough to be the same as taking at 70.
Negative percent indicates how much less than if SS taken at 70.