Getting More If You Retire Late
If you work beyond the normal retirement age, you will receive a larger benefit when you do leave the work force
. Your primary insurance amount is figured the usual way and then increased by a certain percentage for each month you delay retirement. For those born between 1917 and 1924, the increase is 1/4 of l percent per month, or 3 percent per year for each month you remain in the work force. For those born after 1924, the percentage by which benefits increase gradually rises, reaching 2/3 of l percent per month, or 13 percent per year for people born after 1942. If you turned 65 in January 1992, the annual increase factor is 4 percent. If you wait until 68 to retire, your benefit increases by a total of 12 percent.As you can see, delaying retirement offers significant financial advantages. Besides the percentage increase SSA allows your earnings after age 65 may go up, increasing your AIME and, therefore, your benefits. Spouse and other family benefits are also increased to reflect the higher average earnings, but they do not include the increase resulting from the delayed retirement credit. If your spouse outlives you, survivors benefits based on your earnings are increased by any delayed retirement increment for which you qualify.
On the other hand, the percentage increase in your delayed retirement benefit is currently too low to compensate fully for the benefits you have forgone by retiring after the normal retirement age. Yes, delayed retirement increases your monthly benefit, but it also reduces the lifetime value of all your benefits. However, once the annual increase percentage rises to 8 percent, this inequity disappears, and the lifetime value of your benefits is approximately the same regardless of when you begin to receive payments.
To see what the delayed retirement credit means in dollars and cents, let's look at your benefits with the assumption that you've always paid maximum Social Security taxes. If you turned 65 and retired in January 1990, your monthly benefit would have been $975. But if you had retired in 1987 at age 62, the benefit would have been $756 in 1990. On the other hand, if you worked until January 1992 when you turned 67, your benefit would have been about $1,075 less any cost of living increases. Of the $100 increase, approximately $70 results from the delayed retirement credit, and $30 results from your higher average salary earned during the last years of work. If you continue to work until age 70, the monthly benefit jumps to $1,245 before future cost-of-living adjustments.
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