The 24% Social Security Boost Most Eligible Recipients Don't Know How to Actually Claim

There are many retired Americans today who are living on just Social Security. But with an average monthly benefit of just $2,086, that's not necessarily a lot of money to live on.

The good news is that there's a way to set yourself up with much larger Social Security checks for life. If you delay your claim past full retirement age (FRA), which is 67 for anyone born in 1960 or later, you can accumulate delayed retirement credits. Those credits could result in a boost of up to 24% if your FRA is 67.

But while everyone eligible for Social Security is allowed to delay their claim for boosted checks, not everyone has an actual plan to allow that to happen.

How Social Security's delayed retirement credits work

FRA represents the age when you can collect your Social Security benefits without a reduction. But for each month you delay your claim past FRA, your benefits increase by 2/3 of 1%, assuming your FRA is 67. That amounts to an increase of about 8% per year.

Once you turn 70, you can no longer accrue delayed retirement credits that boost your benefits. But all told, you have an opportunity to increase your Social Security payments by 24% if you delay your claim until 70.

The upside of boosted benefits

It's easy to see why waiting until 70 to claim Social Security can be advantageous. After all, larger benefits can offer more buying power than smaller ones. But it's not just larger payments you'll get to enjoy if you file for Social Security at 70.

Every year, Social Security benefits are eligible for a cost-of-living adjustment, or COLA. But the larger your benefits are, the more each COLA is apt to be worth.

This year, for example, Social Security benefits received a 2.8% COLA. On a $2,000 benefit, that's a boost of $56 per month. But a $2,000 Social Security benefit can become a $2,480 benefit if $2,000 is your FRA amount and you wait until 70 to file. And a 2.8% COLA applied to a benefit of $2,480 results in an extra $69 per month.

Also, if you're married and are the higher earner in your household, your spouse will be entitled to survivor benefits from Social Security if you pass away first. Those survivor benefits will equal the benefits you collected. So if you boost that amount by delaying your Social Security claim and scoring a 24% increase, you could potentially leave your spouse in a much stronger financial position.

You need a plan if you want to delay Social Security

While delaying Social Security can be a smart move, one mistake many people make is assuming they'll be able to work until age 70. While that may be possible, you could also end up having to retire sooner than that for a variety of reasons.

If your company downsizes its headcount, for example, and you're only 67 at the time, it could be a challenge to find a new job later in life. And if you can't continue to work past 67, you may not be able to delay your Social Security claim past 67 for larger checks.

How to pull off a delayed claim

If you like the idea of getting a larger Social Security check and you know ahead of time that you want to file for benefits at 70, you should come up with a plan in case working until your 70th birthday isn't feasible or you don't want to work full-time for that many years.

One option, of course, is to continue to work past FRA, but only on a part-time basis. If you're able to keep your living costs down, you may find that taking on freelance or consulting work is enough to cover your expenses.

Another option may be to live off of savings or investments. If you retire with a nice amount of money in an IRA or 401(k), you could take withdrawals between ages 67 and 70 to cover your living costs.

Even if you're withdrawing at a fairly high rate, once Social Security kicks in, you should be able to scale back on retirement plan withdrawals. So larger withdrawals might work if it's only for a few years.

You could also invest in assets that pay you enough income to cover your costs while you're waiting to claim Social Security. A combination of bonds, dividend stocks, and real estate investment trusts could put a decent chunk of money in your pocket.

Also, given today's interest rates, you might do well with a CD ladder. And the benefit of putting money into CDs is that your principal is protected up to the FDIC limit of $250,000 per depositor, per bank.

Bottom line

There are millions of people who rely on Social Security for income. But you should know that the larger your monthly checks are, the more peace of mind you might have throughout retirement.

Even if you have savings or another income stream to rely on, Social Security may be the only guaranteed source of income coming your way. So delaying your claim for boosted benefits is a move that could pay off in the long run.

If that's your intent, make sure to have a way to bridge the gap between FRA and age 70 so you can claim all of the delayed retirement credits you're entitled to. Those larger checks could eliminate some stress living on Social Security.

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