Social Security Statement Discrepancies Regarding Delayed Retirement Credits — Oblivious Investor

A reader writes in, asking:

“Historically, I have seen perfect agreement between my benefit statement on SSA.gov and the results calculated by the SSA’s AnyPIA software.  The latest statement, however, shows a deviation between benefit amounts for the years between FRA and age 70 and the corresponding benefit amounts calculated by the AnyPIA software. Specifically, the benefit amounts shown on the statement are smaller than those shown in AnyPIA.

If my recent statement is correct and there are real reasons for the different escalation for the years between PIA and age 70, it would be of interest to me and maybe your other readers as well?”

The difference has to do with the timing of delayed retirement credits being implemented. Delayed retirement credits (i.e., the benefit increases that you get from waiting beyond your full retirement age) become effective:

• In January of the year following the year they were earned;
• In the month of attainment of age 70; or
• In the month of death, if we’re talking about a widow(er) receiving benefits on the work record of somebody who died after FRA without yet having filed.

What the new statements are showing is what your benefit would be immediately upon filing. They don’t mention that, for filing ages beyond FRA and before 70, there would be a benefit increase in the following January.

In other words, the amount shown on the statement is what you would receive for the duration of the calendar year in which you file. And in January of the following year it would increase to the amount that’s being shown by AnyPIA.

For example, imagine somebody with an April DoB and a full retirement age of 67. And let’s imagine that he files for his retirement benefit in October of the year after his FRA (so he’s filing at 68 and 6 months). We know that the increase per month of delay is 2/3 of 1% of your “primary insurance amount” (which works out to 8% of your PIA for a year of delay). And he has delayed for 18 months (1.5 years). So we might expect that his retirement benefit would be 112% of his PIA. But it isn’t. Not just yet, anyway.

Delayed retirement credits only become effective in January (unless you file at age 70, in which case they’re applicable immediately). So for right now, the only DRCs which have been made effective are the ones from the prior calendar year (i.e., from April-Dec of his full retirement age year). So his benefit will initially be credited with 9 DRCs. So his benefit from Oct-Dec of the year in which he files will be just 106% of his PIA. And then in the following January his benefit will be credited with the DRCs from his year of filing. So it will be increased to 112% of his PIA.

Some questions people often ask when they encounter this information for the first time are:

• Why is the SSA doing this?
• Do I ever get back the additional amounts for the months that weren’t initially credited with all the DRCs?
• What implications does this have for filing decisions?

As far as why the SSA does this, it’s just because that’s how the law is written. Why the law is written that way, I really couldn’t say. (I do think though that the SSA’s new statements could be clearer about what they’re showing you.)

As far as whether you ever “get back” the benefit amounts from the months that weren’t initially credited with all of the DRCs, no, you don’t. There’s no lump-sum payment later to make up for it.

As far as what implications this has for filing decisions, the short answer is: almost none. With regard to this topic, the “best” filing month is January, because it would mean that any DRCs you have earned are made effective immediately. And with regard to this topic, the “worst” filing month is July, because if you file in July you’ll be “missing” 6 DRCs for 6 months. But even then, the total amount “missed” is just 24% of your PIA.

If we imagine a single male in average health with a PIA of $2,000, 24% of his PIA is $480. The expected present value of lifetime benefits for this person is somewhere in the ballpark of $340,000, per Open Social Security. $480 is just 0.14% of that PV. (And it would be an even smaller percentage for a woman, for anybody in better than average health, or for a married couple.) Point being, if you are considering two potential filing ages and a 0.14% change is enough to sway from one to the other, the takeaway is not “oh this one is actually better” but rather that they are equally good. That difference ($480) is going to be overwhelmed by the uncertainty of how long the person lives and whether filing 6 months earlier or later turns out to be better in that regard.