Social Security Confusion? 🤔 Here’s How It Works!

Why didn’t my friend’s wife get all her SS immediately?

By Russell Gloor

Dear Rusty:

A friend told me about what he believes is a strange thing in the Social Security system. His wife reached her full retirement age (FRA) of 66 several years ago. She delayed filing for Social Security past her FRA and claimed on her 68th birthday in June of that year, exactly two years after her FRA.

When she filed, she was told she would receive approximately $300 per month, which was more than she would have received at her FRA. She was told, however, that she would only receive $300 per month as of Jan. 1 of the following year. Between June of the year she turned 68 and filed for Social Security until the end of that year, she received an amount less than $300, the amount she would have received had she filed in December of the year she turned 67.

She was told that was how Social Security works and that she would never receive the difference in benefits she lost from June through December. If this is true, can you explain?

Signed: Astounded Friend

Dear Astounded:

What your friend described is, indeed, a unique methodology for how Social Security handles benefit payments for those who choose to wait beyond their full retirement age (FRA) to claim benefits.

At full retirement age, a person is entitled to 100% of the Social Security benefit they have earned from a lifetime of working. That FRA benefit amount is known as the person’s Primary Insurance Amount (PIA) and is based upon the highest earning 35 years over the individual’s lifetime. From those years, average lifetime monthly earnings are computed, known as the person’s Average Indexed Monthly Earnings (AIME). Those earnings are subjected to a formula which yields the person’s Primary Insurance Amount, the benefit the person is entitled to at full retirement age.

However, if a person chooses to wait beyond FRA to claim Social Security, they can receive a higher monthly benefit by earning Delayed Retirement Credits (DRCs).

How Delayed Retirement Credits Work

• DRCs are applied to the person’s PIA when they claim Social Security.
• For each month after FRA, 0.667% is added to the PIA, or 8% per year.

For someone who claimed 24 months after FRA, the benefit would be 16% higher than the FRA amount. However, Social Security normally applies DRCs only in January of each year.

So, even though your friend’s wife claimed benefits in June, 24 months after her FRA, she initially received only the DRCs accumulated through the end of the previous year, about 12% higher than her FRA amount. She did not receive the remaining earned DRCs until January of the following year. As a result, she did not receive the full delayed benefit from June through December, and that difference is not paid retroactively. That is why she initially received a payment slightly less than the $300 she was told she would eventually receive.

This surprises many who choose to wait beyond their full retirement age to claim Social Security. However, this process does not apply to those who wait until age 70 to claim benefits. Individuals who wait until age 70 receive all earned delayed retirement credits immediately and are paid their maximum Social Security benefit right away.