For some people, picking the age that they retire on their Social Security benefits can be a great chore. But for most, the math and lifestyle considerations come naturally.
Everyone who is close to retirement should know when they need to wait for full retirement age (FRA) benefits. In 2022 the FRA, where you can receive your full benefit, starts from age 66 and four months up to 67 years old, depending on what month you were born.
But, of course, you can wait until you are 70 years old in order to get benefits. This will increase your monthly benefit check.
How The Math Works
Each year you wait to receive you receive 8.0% more in retirement benefits. This is based on the following formula: for every month FRA benefits are delayed you get 2/3rds of 1% more.
So over every quarter (3 months), you get exactly 2.0% more, and every six months you get 4.0% more.
For example, if you were slated to receive $2,000 per month at FRA of 66 plus 4 months, if you wait until 67 and 4 months, you would get 1.08% x $2,000, or $2,160 per month.
Therefore, for many people, unless they have lifestyle issues, it might make sense to delay for 3 years, in order to earn 24% more. With a base rate of $2,000, this would increase to $2,480 per month or $480 more.
Those close to Social Security retirement will be happy to know that next year (2022) there will be a large increase in the annual rise in benefit levels. The cost of living (COLA) increase will rise by 5.90% in 2022 vs. the typical 1.3% annual increase. This is the largest increase in the past 40 years.
That means that the typical beneficiary averaging a $2,000 benefit will get an average increase of $118.00, to $2,118.00 per month.
This again allows a typical retiring person to be able to earn more at both FRA and if they decide to wait.
For example, let's say that by waiting the COLA increase averages 5.9% this year, and 1.3% for the next three years. That compounds out to an increase of 10% by the time you reach 70.
On top of that, you get the 24% increase mentioned above. This means that your waiting earns you 34%, or slightly over 1/3 more. So, now, if you otherwise were going to receive $2,000, now you will get $2,680 per month by age 70.
This shows you how you can do the math of your retirement age. It also shows the major change in Social Security benefits.
There is one more significant change in 2022. The maximum Social Security benefit rises to $3,345 per month, up from $3,148. However, not many people will receive this maximum benefit, as it implies having earned a very high salary for a long time.
Of course, there could be a good number of reasons why you might not want to wait until FRA, or even after that until age 70.
For one, you may simply want to enjoy your retirement years, and not have to show up for work each day. Or you may have health or family considerations.
Retiring early can affect whether you can earn benefits, especially if you continue working. This can become a quite complicated subject - better for another article.
Here is the bottom line: Social Security retirees will have their benefits increase by 5.9% next year, whether they retire early or not.
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This is not financial advice and you should not rely on my analysis to buy or sell any stock, security or crypto, as I am not undertaking to induce you to buy or sell securities.
I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.
This represents my analysis of retirement benefits and stocks and it is not meant to provide you with specific advice in your own situation. I do not presently own these or related securities, but I may buy some of these in the coming weeks.