Delayed Retirement Credits (DRCs) are an important aspect of retirement planning, as they can increase your old-age benefit amount.
In this blog post, we will discuss how DRCs work, how to earn them, and how they affect both your benefits and those of your family members.
What are Delayed Retirement Credits and how do I earn them?
DRCs are credits that increase your old-age benefit amount. You can earn a credit for each month from the time you reach full retirement age (as defined in § 404.409) until you turn 70. You can earn DRCs by not applying for benefits or voluntarily suspending your benefits during this period.
How are DRCs calculated?
The amount of the increase in your benefits due to DRCs depends on your date of birth and the number of credits you earn. The applicable credit amount for each month of delayed retirement is determined based on the table provided in the original text. The total number of credits is then multiplied by the applicable percentage and further multiplied by your benefit amount. The result is rounded down and added to your benefit amount.
When do DRCs take effect?
DRCs take effect at different times depending on your situation:
- Credits earned after entitlement and before age 70: Any increase in your benefit amount is effective starting in January of the year following the year the credits were earned.
- Credits earned after entitlement in the year you turn 70: Any increase in your benefit amount is effective starting the month you turn 70.
- Credits earned before entitlement: DRCs will be included in the computation of your initial benefit amount, with credits earned in the year you turn 70 added in the month you turn 70.
How do DRCs affect the special minimum primary insurance amount?
DRCs are not added to your old-age benefit if your benefit is based on the special minimum primary insurance amount. However, if your benefit based on the regular primary insurance amount plus your DRCs is higher than the benefit based on the special minimum primary insurance amount, you will receive the higher amount.
How do my DRCs affect the benefit amount of others entitled on my earnings record?
- Surviving spouse or surviving divorced spouse: DRCs earned during your lifetime are used to compute benefits for your surviving spouse or surviving divorced spouse, beginning with the month of your death.
- Other family members: Your DRCs do not increase the benefits of other family members entitled on your earnings record.
- Family maximum: DRCs are added to your benefit after computing the family maximum. For surviving spouses or surviving divorced spouses, DRCs are added to their benefit before reducing for the family maximum.
Let’s use the example provided in the original text to demonstrate how Delayed Retirement Credits (DRCs) work:
Alan turned 65 on January 15, 1998, and was qualified for old-age benefits. He decided not to apply for old-age benefits immediately because he was still working. When he turned 66 in January 1999, he stopped working and applied for benefits beginning with that month. Based on his earnings, his primary insurance amount was $782.60.
Since Alan did not receive benefits immediately upon reaching full retirement age (65), he is due an increase based on his DRCs. He earned 12 credits, one for each month from January 1998 through December 1998. Based on his date of birth (1/15/1933), he is entitled to a credit of 11/24 of one percent for each month of delayed retirement.
So, 12 credits multiplied by 11/24 of one percent equals a credit of 5.5 percent. To calculate the increase in his benefit amount, 5.5% of his primary insurance amount ($782.60) is calculated, which equals $43.04. This value is rounded to $43.00, the next lower multiple of 10 cents.
By adding the $43.00 to his primary insurance amount of $782.60, his new monthly benefit amount becomes $825.60. If a supplementary medical insurance premium is involved, it would be deducted, and the final result would be rounded down to the next lower multiple of $1 (if the answer is not already a multiple of $1).
Conclusion: Understanding DRCs and their impact on your old-age benefits can help you make informed decisions about your retirement planning. By delaying your retirement, you can potentially increase your benefits and provide a higher benefit for your surviving spouse or surviving divorced spouse.
https://www.ssa.gov/OP_Home/cfr20/404/404-0313.htm
At Hugo Fierro & Michael Perez, our team of dedicated professionals is committed to providing comprehensive guidance and support in navigating the complexities of Social Security Disability claims. Leveraging our extensive expertise, we strive to ensure that our clients are well-informed and empowered to make informed decisions throughout the process.