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Delaying Social Security Benefits - A Closer Look.

Delaying Social Security Benefits - A Closer Look.

July 25, 2023

 My article does not intend to question the merits of receiving social security before reaching your Full Retirement Age (FRA), which is 67 for most people not yet receiving benefits (See the table below).  Although social security retirement benefits are available at age 62, It’s usually not a good idea to receive benefits before your FRA due to the steep unrecoverable reduction in benefits.

 Factors to Consider in Delaying Benefits.

This article will focus on the decision to delay benefits beyond the full retirement age, which we will assume to be age sixty-seven. The choice is to either receive the payment that Social Security promises to make at your FRA or delay the benefits for up to three years and receive a guaranteed 8% annual tax-deferred increase¹ in income each year. Below we look at some of the factors to consider when deciding to delay benefits or not:

The traditional objective behind Social Security was to help supplant the lost wages during retirement. The benefit payments from the program you paid into during your working life act like an annuity with the US government’s guarantee. Social security is a lifetime benefit that increases with cost-of-living adjustments (COLAs). However, for most people, social security alone will not provide the required income to fund all their annual living expenses. The option to delay your benefits from your FRA to age 70 can increase your annual benefits by 24% from what you would receive at your Full Retirement Age (FRA).


 Why would you delay benefits past FRA?

  • Increased income of 8% annual (.067 monthly) interest¹ for each year (or month) delayed until age 70.

  • Increased survivor benefit for a spouse as they “step in the shoes” of the deceased spouse.

  • Cost of living adjustments applied to delayed benefits (same COLA as active recipients).

  • Lower taxable income during the delay period, possibly resulting in lower taxes, lower Medicare premiums, and lower income thresholds to qualify for various tax deductions and credits. However, the tax benefit may be lost if the source of replacement income has an adverse tax impact (see below).

         ¹Simple Interest on PIA at full retirement age (not compounded).

For Example:

Julie recently retired and is turning 67, her Full Retirement Age. Her choices are to receive the $30,000 ($2,500 per month) in Social Security benefits beginning at age 67 or delay her benefits up to three years. The table below illustrates the delayed benefit she would receive at ages 67 through 70. If Julie delays her benefits until she is 70, her monthly benefit will increase from $2,500 to $3,100 (24% increase). If Julie is married, her spouse will receive the $3,100 per month (non-Cola-adjusted) in survivor benefits unless her spouse’s benefit is larger.


Why would you not want to delay benefits past FRA?

  • Many people may have no choice but to begin receiving benefits to fund living expenses, especially if they’re also retiring and won’t have a paycheck anymore.

  • Many people feel that delaying benefits could mean waiting for what you want to do in retirement. A break-even point can always be determined to help decide which option is more appropriate. But you could be trading early active retirement years for later years, which may not be as active.

  • Individuals with poor health or a family history of life-reducing health conditions may feel less likely to delay benefits.


Continue to work beyond age 67 (Full Retirement Age)?

If you plan to work beyond your full retirement age, there are only a few situations where it could make sense not to wait until age 70 to receive benefits. Unless the funds are needed to pay for living expenses, the higher income may elevate you to a higher tax bracket, make Medicare B premiums more expensive, and possibly make certain tax deductions and credits ineligible because of the higher income.

 If you delay benefits past your retirement, where will the funds come from to replace the delayed retirement benefits?


The cash holdings in savings or checking accounts large enough to cover basic living expenses during the delay period would be the most efficient source of replacement income since:

  •  No withdrawals of retirement funds are required.

  •  No income taxes on withdrawals (unless CD prepayment penalties).

  •  No liquidation of assets is needed.

  •  No need to borrow funds.

Available cash in non or low-interest-bearing accounts is usually reserved for “emergency” purposes. Using emergency reserves for the delay period may force a sale of investments in the event of an emergency. Public investments can be liquidated in a couple of days, and there may or may not be tax consequences depending on the nature of the investments.

Withdrawing from Retirement Accounts

Withdrawals from retirement accounts to replace social security benefits during the delay period (age 67 to 70) are less efficient than withdrawing idle cash in checking or savings. Still, it may be the only other source available. Some things to consider:

  • A drawback of withdrawals from retirement accounts is that funds designed to grow compounded for several years are reduced. But the greater increase in income beginning at age 70 will create larger income payments that could be invested long-term.

  • Withdrawals from some retirement accounts can be taxed as ordinary income, capital gains, or have no tax at all applied.

  • Deductible (pre-tax) qualified accounts (401K’s, 403B’s, 457B’s, Individual Retirement Accounts (IRA’s) – Distributions from qualified accounts are generally taxed as ordinary income.

  • Non-deductible qualified accounts (Roth IRAs, after-tax contributions to 401K’s – Distributions from non-deductible qualified accounts consist of ordinary income (capital appreciation, dividends, and interest) and return of principal (cost basis is total of after-tax contributions). Distributions from Roth IRAs are tax-free, provided certain conditions are met.

  • Non-qualified taxable accounts (brokerage) – Distributions from Individual, joint, or trust accounts can be either ordinary income or capital gain income.



Under some circumstances, borrowing can effectively provide the funds needed during the delay period.  However, debt implies that the future will produce a greater income level that can pay principal and interest. For somebody in their accumulation years, that is a reasonable implication. However, a retiree’s income is most likely decreasing during retirement, and inflation can increase living expenses. A reverse mortgage can help provide tax-free loan proceeds without making future payments. However, the downside risks involving the reverse mortgage require careful analysis before determining if a reverse mortgage is right for you. 

Other less common ways to fund your retirement during the delay years could include using the excess cash in a life insurance policy or selling assets that are not producing income. The more uncommon the situation, the greater the need for a thorough analysis. As you can see, the decision to delay benefits is not always the right decision, but it is most of the time. The combination of the 8% increase in income and survivor benefits can have a significant positive impact on your planning needs.

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