How a Late Retirement Could Affect Your Wallet

Written By Jeff Hindenach
Last updated December 1, 2020

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Senior man relaxing on a hammock
September 1, 2017

Simple. Thrifty. Living.

The term “late retirement” is often synonymous with “delayed retirement,” which suggests applying later to receive larger retirement benefits. The first chance to qualify for Social Security is when you turn 62 years of age. However, doing so then would mean getting less than your maximum benefit amount. You can delay yourself, and if you do so for long enough, you will receive more than the maximum benefit thanks to delayed retirement credits.

You might be delaying your retirement to grow your savings. However, some financially sound seniors continue working to build up their retirement benefits before taking them. Either way, it’s advisable to not retire when you hit 62 years (unless you have sufficient savings) because you will take a 25 percent cut in your benefits. Even at 63 you lose roughly 2 -percent, at 64 it’s around 13.3 percent and if you retire at 65, you still lose an estimated 6.7 percent.

Why Retire at 66 Years or Older?

Waiting until you are 66 years old will allow you to capture 100 percent of your potential payment amount. You can increase your Social Security benefits even more by delaying it even longer. The increase in payment size caps at 70 years of age, when you receive 130 percent of your full retirement benefit. The benefit increase is 8 percent at 67 years, 16 percent at 68 years and 24 percent at 69 years of age.

The biggest perk is having more time to save towards larger Social Security benefits and a bigger retirement savings fund in general. Your multiplier on your benefits is the result of not claiming for previous years. There’s no back pay, but retroactive payments are sometimes an option. Be careful here — if you take six months of retroactive benefits right at 70 years, your application is at 69.5 years instead, which means a 4 percent lower benefit rate.

Is a Delayed Retirement Better for Your Spouse?

One argument for a late retirement is that it can help your spouse by increasing their benefits after your death. The survivor’s benefit your spouse can qualify for will increase as you prolong your retirement past 66 years of age. The benefit for the survivor will be determined by when their spouse dies. The amount they will get is equivalent to the entitled amount of the deceased individual. At 70 years or older, the survivor could claim 130 percent. However, the widower cannot increase their survivor benefit by waiting, as the delayed retirement credits stop when their spouse dies.

It is possible for medical insurance to cost more if you delay your retirement. You can do so by applying online like you would for retirement benefits — but selecting the Medicare-only option. You can request Medicare between three months before and three months after your 65th birthday. Check on your employer (and your spouse’s) to see if your medical benefits cover doctors’ services and other medical costs. If so, look into the special enrollment period, as you will not need to apply for Medicare’s Plan B coverage right away. By not qualifying yourself for the special enrollment, there is a risk of paying more in premiums each month for your health coverage.

Deciding when to retire is not just about your benefit calculations. You should assess your personal life, your other financials and the implications it will have on your spouse and dependents. However, when it comes to building a bigger recurring income post-retirement, there’s no doubting the value that comes if you do delay.

About the Author

Jeff Hindenach

Jeff Hindenach is the co-founder of Simple. Thrifty. Living. He graduated from Bowling Green State University with a Bachelor's Degree in Journalism. He has a long history of financial journalism, with a background writing for newspapers such as the San Jose Mercury News and San Francisco Examiner, as well as writing on personal finance for The Huffington Post, New York Times, Business Insider, CNBC, Newsday and The Street. He believes in giving readers the tools they need to get out of debt.

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