What Is a Strange But True Free Loan From Social Security?

Social Security provides a financial foundation for millions of Americans, offering various benefits that support individuals and families. A specific feature within the system can significantly enhance future monthly payments. This unique aspect provides a substantial increase to your retirement income without any repayment obligations.

Understanding Delayed Retirement Credits

The mechanism behind this financial advantage is known as Delayed Retirement Credits (DRCs). These credits are provided by the Social Security Administration (SSA) to individuals who postpone receiving their retirement benefits beyond their designated full retirement age (FRA). By choosing to delay, your future monthly benefit amount grows permanently. This growth occurs because the SSA provides a higher monthly amount once you file, acknowledging the benefits you did not claim.

Eligibility for earning DRCs begins the month after an individual reaches their FRA. For those born in 1960 or later, the FRA is 67. For individuals born between 1943 and 1954, it is 66, with a gradual increase for those born in subsequent years. These credits continue to accrue until you reach age 70, at which point they stop increasing. There is no additional financial incentive to postpone claiming benefits past your 70th birthday.

DRCs are specifically designed to increase an individual’s own retirement benefit. They do not apply to other types of Social Security benefits, such as spousal benefits, which are typically capped at 50% of the primary earner’s benefit at their FRA. While DRCs directly boost your personal monthly payment, they do not automatically increase the maximum amount a spouse can receive based on your earnings record. The system encourages delaying benefits by offering this permanent increase, reflecting a trade-off: fewer total payments over a longer period versus a higher monthly payout.

Quantifying the Benefit Increase

For individuals born in 1943 or later, Social Security retirement benefits increase by 8% for each full year they are delayed past the full retirement age, up to age 70. This annual percentage translates to an increase of two-thirds of 1% for each month you postpone claiming benefits. For example, if your full retirement age is 67 and you delay claiming for one year, your monthly benefit will be 8% higher than it would have been at your FRA.

If an individual with an FRA of 67 waits until age 70, they will have delayed for three years. This results in a total increase of 24% (8% per year multiplied by three years) to their monthly benefit. For instance, a person born in 1960 with a full retirement age of 67 who would receive $2,000 per month at that age could see their monthly benefit rise to $2,480 by waiting until age 70. This 24% increase is applied to the primary insurance amount (PIA), which is the benefit calculated based on your earnings history.

The increased benefit amount resulting from DRCs also benefits from subsequent cost-of-living adjustments (COLAs). Once you begin receiving benefits, any COLAs applied by the Social Security Administration will be calculated based on your higher, delayed-credit-adjusted amount, further enhancing the long-term value of your payments.

Claiming Your Social Security Benefits After Delay

Once you have delayed claiming your Social Security benefits to maximize Delayed Retirement Credits, the application process is straightforward. It is recommended to apply approximately three months before the date you wish your benefits to begin. This timeframe allows the Social Security Administration (SSA) sufficient time to process your application and initiate payments without interruption.

You can apply online through the SSA’s official website, ssa.gov. This platform allows you to complete the application at your own pace and save your progress. Alternatively, you can apply by calling the SSA’s national toll-free number at 1-800-772-1213, or by scheduling an appointment to visit a local Social Security office.

When applying, you will need to provide specific information and documents to verify your identity, eligibility, and work history. Essential items include:
Your Social Security card or a record of your number.
Your original birth certificate or a certified copy.
Proof of U.S. citizenship or lawful alien status if you were not born in the U.S.
A copy of your W-2 forms or self-employment tax returns from the previous year.
Your military discharge papers, if you served in the military before 1968.

The application also requests details about your current and former spouses, including their Social Security numbers and dates of birth, along with marriage and divorce dates. Information about any unmarried dependent children is also relevant. You will need your bank’s routing number and account number for direct deposit, as Social Security payments are issued electronically. Even if you do not have all documents immediately available, it is advisable to apply, as delaying could result in missed benefits, and the SSA can often assist in obtaining missing information. After submission, you can check the status of your application online through your “my Social Security” account or by calling the SSA. Processing typically takes around six weeks for retirement applications.