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Why late retirees will soon receive less social security bonuses – The Motley Fool



A joint social security council is that if you want to get bigger monthly payments, it pays to wait. Many older Americans take social security as early as possible when they reach 62, resulting in a large pay cut compared to what they would get if they waited until the full retirement age.

For retirement benefits, social security goes one step, besides paying a bonus to those who wait beyond their full retirement age to take benefits. This bonus comes in the form of delayed pension credits. Nevertheless, the maximum number of retired pension credits that new retirees have the right to take is declining ̵

1; and some expect further reductions in the coming years.

<img alt = "Three social security cards with a brass key at the top. [19659004] Image source: Getty Images.

The basis of Social Security's retirement late bonus

The number of monthly retirement benefits that workers receive Depending on their age, when they retire, the calculations provided by the Social Security Administration to determine the exact amount of benefit are based on a single basic principle: Payments must be approximately the same regardless of where you claim them as long as you live to a normal life expectancy. [19659002] There are lots of complex actuarial sciences that go into the rules, but actually using the rules are not too hard. It basically boils down to three things:

For those who want to retire late, the bonus that Social Security gives you is two-thirds of one percent of your basic pension each month that you expect over full-time pensions Your retired pension credits maximum when you reach the age of 70.

To illustrate this, you say you just got 66 in early 2019 and think of retirement. Your social security statement states that your regular benefit will be $ 1,800 per. Month, but you are thinking of getting the benefits in a few years until you turn 68.

For a born in 1953, who turns 66 in 2019, full retirement age is 66. If you plan to wait two years, it goes out to 24 months. 24 months multiplied by two-thirds of one percent goes out at 16%, so your bonus amount will be 16% of $ 1,800 or $ 288 per month. That amount is appreciated in today's dollars and it will be subject to the same upward inflation adjustments as your benefits would be if you took them now.

Why younger workers will see less of a bonus to wait

In the example above, the worker chose to wait 24 months. But because the employee's full retirement age was 66 and you can earn delayed pension credits up to 70 years, it would have been possible to wait as long as 48 months – get a 32% bonus.

But the entire retirement age goes up for younger workers. If you were born in 1955, your full retirement age is 66 and two months. For those born later than the age goes up by two months until it hits 67 for those born in 1960 or later.

Because delayed retirement credits are always at a maximum of 70, a higher full retirement age means a small bonus to wait. For someone whose full retirement age is 67, wait until 68 years to retire, you will only get 12 months of late retirement credits working out for an 8% bonus. It's $ 144 per. Month less than in the example above. Moreover, the most you ever get can be a 24% bonus if you waited until 70 years to claim.

What It Means to You

Remember that you only get a bonus to wait beyond full retirement age if you claim your own retirement benefits. Spousal benefits do not receive a bonus, so it is seldom sensible to wait longer than the full retirement age to get them.

The fact that fewer delayed retirement credits will be available to those whose full retirement age is higher does not change the general principle of waiting for more money. In fact, if you retire at 66 when your full retirement age is 67, you will suffer a penalty in relation to your full benefit.

When you claim social security is a personal decision, but there are many financial aspects to it. Understanding not only the current bonus that delayed retirees will have to expect, but also the impact on future retirees is crucial so you can make the best choice for your situation.


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