Dis­cussing De­layed Re­tire­ment Cred­its

Escalon Times - - PERSPECTIVE - By RUS­SELL GLOOR So­cial Se­cu­rity Ad­vi­sor

Dear Rusty: I have de­layed tak­ing my So­cial Se­cu­rity re­tire­ment ben­e­fits for about three years past my full re­tire­ment age. I now want to start col­lect­ing ben­e­fits and am con­fused about the ben­e­fit cal­cu­la­tion if I start midyear. Yes­ter­day, I went to the So­cial Se­cu­rity of­fice and ap­plied and was told I would re­ceive $1,000 month (to make up a num­ber) start­ing in Novem­ber and again in De­cem­ber, and then in Jan­uary the amount would in­crease to $1070. Looking at the award let­ter on­line to­day, it is only show­ing the $1,000 start­ing in Novem­ber. A long call to So­cial Se­cu­rity did not re­sult in the per­son say­ing the amount would in­crease in Jan­uary so I sus­pended my claim. Looking fur­ther on­line it ap­pears the $1,000 amount was the ben­e­fit as of Jan­uary 2017, 10 months ago. Search­ing the So­cial Se­cu­rity web­site seems to say the ben­e­fits in­crease on a monthly ba­sis, not an­nu­ally – but the $1,000 is an an­nual cal­cu­la­tion from 10 months ago. There is no ver­biage talk­ing about what hap­pens if a per­son de­lays col­lect­ing and then some­time be­fore he turns 70 starts to col­lect.

So the ques­tion is: If I do start re­ceiv­ing the Jan­uary 2017 amount of $1,000 in Novem­ber, will So­cial Se­cu­rity do an ad­just­ment for fu­ture pay­ments in Jan­uary of 2018 for the 10 months from Jan­uary to Oc­to­ber? Or am I stuck with the re­duced $1,000 for­ever? Signed: Un­cer­tain

Dear Un­cer­tain: You haven’t given me your birth­date, but from what in­for­ma­tion you’ve pro­vided I be­lieve it to be Jan­uary 1948, which means that your full re­tire­ment age (FRA) for So­cial Se­cu­rity pur­poses is 66. Since you did not ap­ply for So­cial Se­cu­rity at your FRA, you have been build­ing De­layed Re­tire­ment Cred­its (DRCs) at a rate of 8 per­cent per year, which means that as of Jan­uary 2017, you were en­ti­tled to 124 per­cent of the ben­e­fit you were due at FRA. You are cor­rect that DRC’s are earned monthly and the in­crease rate is two-thirds of 1 per­cent per month, so by Novem­ber of 2017 you would have ac­crued an ad­di­tional 6 per­cent DRCs for a to­tal of 130% per­cent of your Pri­mary In­sur­ance Amount (or “PIA,” the amount you were en­ti­tled to at your FRA). How­ever, since So­cial Se­cu­rity only re-com­putes ben­e­fits to ap­ply DRCs in Jan­uary of each year, you wouldn’t ac­tu­ally re­ceive a ben­e­fit in­crease for that ex­tra 6 per­cent of DRCs un­til Jan­uary 2018. In other words, So­cial Se­cu­rity does not pay DRCs retroac­tively.

If you are cor­rect that your ben­e­fit amount for Jan­uary 2017 was $1000, by do­ing the math we cal­cu­late your Pri­mary In­sur­ance Amount (the amount of your ben­e­fit at age 66) to be about $807 and your ben­e­fit amount start­ing in ei­ther Jan­uary or Novem­ber of 2017 at about $1000, or 124 per­cent of your PIA. Since as of Novem­ber you have ac­tu­ally ac­crued 130 per­cent in DRCs, you will get the ad­di­tional 6 per­cent DRCs start­ing with your Jan­uary 2018 ben­e­fit (paid in Fe­bru­ary 2018) for a to­tal of $1,049 (130 per­cent). If you in­stead wait un­til you are age 70 to start ben­e­fits in Jan­uary 2018, the amount would be 132 per­cent of your PIA, or about $1065 ($807 x 132 per­cent = $1065). Our fig­ures do not al­low for any COLA in­creases.

So if you did start your ben­e­fits in Novem­ber 2017 your ben­e­fit then would be the same as it would have been in Jan­uary 2017, be­cause DRCs are only ap­plied to ben­e­fits in Jan­uary of each year. Then in Jan­uary 2018 your ben­e­fit amount would be re­com­puted to add the ad­di­tional 6 per­cent DRCs you ac­crued from Jan­uary to Oc­to­ber 2017. The ex­cep­tion to this rule is that earned DRCs are im­me­di­ately ap­plied to your first ben­e­fit pay­ment in any month when you ap­ply for ben­e­fits at age 70.

The in­for­ma­tion pre­sented in this ar­ti­cle is in­tended for gen­eral in­for­ma­tion pur­poses only. The opin­ions and in­ter­pre­ta­tions ex­pressed in this ar­ti­cle are the view­points of the As­so­ci­a­tion of Ma­ture Amer­i­can Cit­i­zens Foun­da­tion’s So­cial Se­cu­rity Ad­vi­sory staff. To sub­mit a ques­tion, con­tact the Foun­da­tion at info@ amac­foun­da­tion.org.

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