Why Social Security can delay your retirement credits

I can tell that Social Security planning has reached maturity when questions involve not just tactics of how to boost future benefits but queries about when higher benefits are actually paid.

Several readers have written to me in recent weeks complaining that after postponing their retirement benefits in order to create a larger benefit amount at an older age, they did not receive the full delayed retirement credits that they earned.

I looked into their complaints and learned that it is a matter of timing. They will receive their full delayed retirement credits, worth 8% per year (or 2/3 of 1% per month) for postponing their benefits beyond full retirement age up to age 70, but in some cases, they may have to wait an extra year for full payment.

“I turned 66 years old on May 7, 2015, and my full retirement age benefit was $2,657 per month,” one reader wrote. “I will start collecting my benefit on June 8, 2016 at the age of 67 and one month. But instead of getting $2,869 ($2,657.00 + 8%) for 12 months of delayed retirement credits, Social Security is paying me only $2,799 ($2,657 X .0533% ) for eight months.”

When he questioned the benefit amount, a Social Security Administration representative told the reader that benefits are based on the calendar year and on Jan. 1, 2016, he was only 66 years and 8 months old.

“According to them, I have to wait until Jan. 1, 2017, to get the full $2,869 per month,” he wrote. “Are they correct?”

I checked with my trusted source, Social Security Administration national spokesperson Dorothy Clark.

“Social Security applies a delayed retirement credit (DRC) to increase the monthly benefit for any month in which a worker is due a retirement benefit but does not receive the benefit,” Ms. Clark explained. “The credit begins with the month of full retirement age and ends no later than the month before attainment of age 70.”

“If a worker collects Social Security at age 70, all the DRCs are included in the worker’s monthly benefit payable at that time,” she added. “But if a worker retires before age 70, some of his or her delayed retirement credits will apply the January after their benefits start.”

Ms. Clark offered the following example. If a worker whose date of birth is Feb. 2, 1947, begins to receive benefits beginning in June 2016 at age 69 and four months, his monthly benefits payable in June 2016 will include DRCs from February 2013 through December 2015. The DRCs for January 2016 through May 2016 are added to the benefit payable the following year in January 2017.

Another reader, a financial adviser in Florida, had similar question and was frustrated by a lack of answers he got from his local Social Security office.

“I filed and suspended my benefits shortly after I turned 66,” he wrote to me. “I am now almost 69, but started taking my Social Security benefit in November of 2015 to make sure I was covered by the hold harmless provision that would protect me from a sharp increase in my Medicare premiums in 2016.”

Only those retirees who had their Medicare Part B premiums deducted from the Social Security payments no later than November 2015 were protected by the “hold harmless” clause that prevents an increase in Medicare premiums in years when there is no cost-of-living adjustment in Social Security benefits. People who were not collecting Social Security benefits by then, including those who had filed and suspended their benefits, would have to pay a higher base premiums of $121.80 per month in 2016 compared to $104.90 per month in 2015.

While his strategy to collect Social Security benefits earlier than he had originally planned saved him about $17 per month in higher Medicare Part B premiums this year, he was distressed by the paltry size of his monthly Social Security benefit.

“Social Security started my payments in November 2015 at the level I should have been entitled to as of January 2015, and I didn’t receive the 10 months of DRCs that I earned,” he wrote. “Is the 14-month delayed receipt of my proper DRC-adjusted payment the way Social Security is supposed to work?” he asked. “Will I get any catch up for the delayed payment?”

Ms. Clark assured me that this reader will receive the balance of the delayed retirement credits that he is owed beginning in January 2017. But there are no additional catch-up payments beyond the 8% per year delayed retirement credits.

Ms. Clark also noted that delayed retirement credits do not increase the worker’s full retirement age benefits, also known as Primary Insurance Amount (PIA). They only increase the monthly benefit amount.

(Questions about new Social Security rules? Find the answers in my new ebook.)

Mary Beth Franklin is a certified financial planner.