Social Security benefits are a vital part of retirement planning for many Americans. Most people know they can start collecting benefits at age 62, but did you know that waiting until age 70 to claim your benefits can increase your monthly payment?
What happens if you wait past 70? Surprisingly, your benefits can go down if you delay claiming after age 70. Let’s understand why this happens and what it means for your retirement income.
How Social Security Benefits Work After 70?
The Social Security Administration (SSA) allows you to delay claiming benefits past your full retirement age (FRA), which is between 66 and 67 for most people, up to age 70.
This delay can increase your benefit amount through something called “delayed retirement credits.” For each year you wait beyond your FRA, your benefits grow roughly 8% per year. This means if your FRA is 66 and you wait until 70, you could get up to 32% more monthly income.
However, after you hit 70, the SSA stops adding those delayed retirement credits. So, delaying beyond age 70 doesn’t earn you any more increase.
More importantly, if you haven’t started taking benefits by then and keep waiting, your benefits do not keep increasing, and in some cases, they can decrease.
Why Social Security Benefits May Drop After 70?
If you delay claiming Social Security past age 70, two main things happen that can reduce your benefits:
- No More Delayed Retirement Credits:
Once you reach 70, your benefit amount stops growing. The SSA does not give any extra increase for waiting longer. So, if you hold off beyond 70, your benefit is fixed at the 70-year rate. - Earnings Test Comes Into Play:
If you work after 70 and earn more than a certain limit, your benefits may be reduced temporarily under the SSA’s earnings test rules. This can lower your monthly payments until you reach full retirement age again. After FRA, the earnings test no longer applies. - Potential Decrease Due to Inflation Adjustments:
Social Security benefits are adjusted for inflation every year through Cost of Living Adjustments (COLA). If the inflation adjustments after age 70 don’t keep pace with other factors like taxes or deductions, your net benefit could feel like it’s going down.
What Should You Do If You’re Over 70?
If you’re already over 70 and haven’t claimed Social Security, it is usually best to apply as soon as possible to avoid missing out on benefits. Waiting longer won’t increase your payment and may even reduce your income if you continue working and earn too much.
If you are still working after 70, consider how your earnings might affect your Social Security. High earnings could temporarily reduce your benefits due to the earnings test, but once you reach your full retirement age again, your benefit will be recalculated to give you credit for any months benefits were withheld.
How Social Security Benefits Are Calculated?
Social Security benefits are based on your 35 highest-earning years. The SSA calculates your average indexed monthly earnings (AIME) and then applies a formula to determine your primary insurance amount (PIA). The PIA is the base benefit you receive at your full retirement age.
Delaying benefits after FRA increases your PIA by 8% per year until age 70. Beyond 70, no further increases are added, so the PIA stays the same.
Common Misunderstandings About Delaying Benefits
Many people think waiting beyond 70 will keep increasing their Social Security income. This is not true. The law sets 70 as the maximum age for earning delayed retirement credits.
Also, some believe working after 70 will not affect benefits, but if you earn above the limit, the earnings test can reduce payments temporarily.
Important to Plan Your Social Security Strategy
Understanding how Social Security benefits work can help you plan your retirement income better. Waiting to claim until age 70 can maximize your benefit, but delaying beyond 70 won’t help and might cause reductions if you earn a high income.
If you are close to or beyond 70, think carefully about when to apply and how your work earnings may affect your monthly benefit. The Social Security website offers helpful tools to estimate your benefits and plan accordingly.