Mike: A client of mine recently received a letter from the Social Security Administration saying: “We are writing to tell you that you should apply now for monthly Social Security retirement payments.” The client wants to continue working. Should he apply for benefits? He turns 70 in March 2021.
MBF: Yes, he should apply for benefits now to begin when he turns 70 in March 2021. He can apply for benefits online at up to four months before he wants his benefits to begin.
There is no value to delaying Social Security beyond age 70 since delayed retirement credits end then.
Delayed retirement credits are worth 8% per year for every year you postpone claiming benefits beyond full retirement age up to age 70. So if his full retirement age is 66 and he waits until 70 to claim his benefits, he would receive an additional 32% beyond his full retirement age amount when he turns 70 thanks to four years of delayed retirement credits.
For example, if he was entitled to $2,000 per month in retirement benefits at 66, but he waited until 70 to claim Social Security, he would receive $2,640 per month.
In reality, his monthly benefit would be even higher because for every year he was eligible to claim Social Security beginning at age 62 until he actually filed for benefits at 70, he would receive each annual cost-of-living adjustment issued during those intervening years.
And by waiting until age 70 to claim benefits, he will receive all 32% of delayed retirement credits at once. If he had requested his benefits to start before age 70, he would initially receive all the delayed retirement credits that he had earned through the previous December and he would have to wait until the following year to receive the final bump up in benefits.
Collecting Social Security at age 70 will have no impact on his benefits if he continues to work since earnings restrictions stop at full retirement age.
However, his Social Security benefits will be subject to income taxes, and the added income could affect his future Medicare premiums.
Mary Beth Franklin, a certified financial planner, is a contributing editor for InvestmentNews.
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