Delaying claiming Social Security beyond age 70

I’ve spent more than a decade writing about Social Security’s intricate rules, exceptions, and claiming strategies for InvestmentNews readers. Usually my weekly columns are inspired by questions from readers concerning their personal retirement planning issues or those of their clients. But occasionally, I learn something new from my readers, as in the case of this column on why it sometimes makes sense to delay claiming Social Security benefits after age 70.

I know. That may sound like heresy. After all, delayed retirement credits, which increase an individual’s full retirement age benefit amount by 8% per year for each year one postpones claiming beyond full retirement age, stop at age 70.

As the Social Security Administration’s Fact Sheet for Workers Age 70 and Up clearly states: “Waiting beyond age 70 will not increase your benefits … you will receive no additional benefit increases if you continue to delay claiming them. Apply now.”

So you can imagine my surprise when Arthur Prunier wrote to me with a suggestion for a column on “Why I’m waiting until after 70 to claim my Social Security benefits.” I paid close attention to his suggestion since Prunier is not only an adjunct instructor at the American College on Financial Services but also Professor Wade Pfau’s teaching assistant for the college’s retirement income certified professional designation program. That’s street cred in my book.

“I’m waiting until December 2023 when I turn 70 and four months to claim my Social Security benefits,” Prunier wrote to me in an email. “And since I’m not stupid, I’ll be claiming four months of retroactivity back to August 2023 when I actually turn 70.” Benefits are paid one month in arrears, so benefits claimed in December 2023 are paid in January 2024.

Why delay? “My goal in utilizing this claiming strategy is to shift what would otherwise be four months of 2023 Social Security income into January 2024,” he explained. That income shifting strategy would save him more than $600 in state income taxes, he said.

At the federal level, up to 85% of Social Security benefits are taxed at ordinary income tax rates once combined income for an individual exceeds $34,000 or combined income for a married couple filing a joint return exceeds $44,000. Combined income includes adjusted gross income, plus one-half of Social Security benefits (the other half is already included in AGI), plus any tax-exempt income.

Prunier said he likely would remain in the same 22% federal tax bracket in both years, regardless of when he claimed Social Security, and he and his wife should escape the high-income surcharge for Medicare Part B premiums that kick in at $194,000 of joint income next year. The thresholds that trigger the income-related monthly adjustment amounts, or IRMAA, increase each year.

Lucky for Prunier that his birthday is in the second half of the year because retroactive benefits cannot be paid more than six months in the past. Tough luck for those born in January through May (whose benefits would be paid in February through June). They could not shift Social Security income into the following year without losing benefits.

For someone with a full retirement age of 66, like Prunier, waiting until age 70 increases his monthly benefits by 32% more than he would have received at his full retirement age as a result of four years’ worth of delayed retirement credits worth 8% per year. When you claim Social Security at age 70 or later, all of the accumulated delayed retirement credits — 32% in this case — would be paid at once.

But if you claim benefits before age 70, some of the delayed retirement credits would not be paid until the January after you start receiving benefits.

For example, say you reach your full retirement age of 67 in June, but you plan to wait until your 69th birthday to start your retirement benefits. Your initial benefit amount will reflect delayed retirement credits earned from your full retirement age of 67 through the year before your 69th birthday, according to an example supplied by SSA. In January of the following calendar year, your benefit will increase for the credits earned in the year of your 69th birthday.

Try the online calculator to estimate how your claiming age affects your benefit amount.

One of the best reasons to delay claiming Social Security until the maximum age of 70 is to create the largest base benefit amount, which will result in bigger annual cost-of-living increases for the rest of your life.

For example, if you received a $3,000 benefit at your full retirement age of 66, the 8.7% COLA would increase your benefits by about $260 per month in 2023. But if you delayed claiming until 70, your enhanced benefit would be worth about $4,000 per month and the 8.7% COLA would increase your retirement benefit by more than $345 per month next year.

(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s 2022 ebook at MaximizingSocialSecurityBenefits.com.)