SSA.gov plan estimator confusion - start date

[MichaelC287014]

I turn 67  on 10/10/21.  I have decided to start SS this year.  I want to time my start to take advantage of the one year delay in starting SS.  I was born in 1954 so I believe my full retirement age is 66 and 0 months. When I use the SSA,gov estimator, it shows a monthly payment for October that is unchanged. It is unchanged for November and December too.  The estimator does not indicate a monthly payment increase until 67 and 3 months ( January) .  This is very confusing.  Do I apply in October and get the October number? The January number?  Is the payout based on when I signup or when i start receiving payments? Why doesn't the estimator show an increase in October? Why is there a 3 month delay?

[WebWiseWoman]

Lest we forget, those of us already receiving SS retirement benefits know the COLA (cost of living adjustment) each year goes into effect with our January payment; perhaps that is the difference you are noting?

Congrats on retirement!

#StaySafe

[fffred]

@MichaelC287014 

There is a rule, or a practice, that the SSA follows in that any delayed retirement credits (DRC) are not fully accounted for until January of the year following the year in which you apply. If you apply at some random time during the year, February to December, the DRCs to which you are entitled won't be fully applied to your monthly benefit until the following January. Thus for all those intermediate months the calculators will give you the same benefit, until you run one where you have applied in January. 

This leaves several months' worth of a portion of a missing benefit. I assume, but don't know for certain, that this missing money is paid later (maybe that following January). I have asked around about this point but not gotten a good answer.

An exception to the "January" rule is that if you are getting your benefit at age 70 then your full DRCs are applied immediately regardless of the month of the year.

I want to provide you a link to the page on the SSA website that describes this rule but at this time of night my day has been too long... I have searched a bit but not found it yet. This point was actually discussed in this forum several years ago and you might be able to find the post by searching (I'm trying as well but dreamtime is calling me). I plan to get back to this tomorrow and hope I can get you a link to the official line.

note: I use the downloadable SSA program Anypia32.exe and I can produce the exact results that I described above. Maybe you can too...not that that provides info on the rule itself.

[fffred · Accepted solution]

@MichaelC287014 

Okay, Google has been my friend.

See https://www.ssa.gov/benefits/retirement/planner/delayret.html

They say "If you retire before age 70, some of your delayed retirement credits will not be applied until the January after you start receiving benefits."

And they provide an example.

[MichaelC287014]

Thank you @fffred, once again you have helped me understand the rules.  Another point of confusion I  have had is the existence of an increasing monthly benefit.  Once again the SSA estimator showed no increase.   According to the table on this page https://www.ssa.gov/benefits/retirement/planner/1943-delay.html , the retirement benefit at 67 is 108% of FRB but one month before it is still 107.3%.  I have read and heard tales that the benefit is yearly - you must wait for your birthday date to see any increase. meaning at 66 and 11 months it would be 100% of FRB not 107.3%.  If the benefit grows monthly,  then there really is no need to precisely schedule the start. The online calculator referenced in your link - https://www.ssa.gov/OACT/quickcalc/early_late.html -  helps clarify the situation as well.

[fffred]

@MichaelC287014 

hey Michael, I'm not certain if you still have questions on whether the DRCs are applied monthly or only annually. I "guarantee" you that they are applied monthly...for each extra month that you delay getting the "old age" retirement benefit you will get a small % increase in your payable benefit. 

But you shouldn't my word for it. Here's a page from the SSA that describes these credits. (This page is pretty cool because it's actually an extract from the Code of Federal Regulations (CFR), which are the Federal laws that cover everything that is "lawed"). See https://www.ssa.gov/OP_Home/cfr20/404/404-0313.htm

That page shows that someone born after January 1, 1943 receives a DRC of 2/3 of 1% for each month of delay.

This can be seen in detail with the Anypia32.exe program available for download on the SSA site. It's a bit tricky to learn but as I recall you are a smart engineer, so no problem. This "calculator" is more powerful than those on-line. It lets the user specify their retirement date (the date at which they're going to collect benefits) and also specify the date at which the benefit should be calculated. Thus I have studied the "January" rule with this program: I set my retirement month at some point throughout the year, the reported benefit does not vary unless the input month is January. But when I do this same study and specify that I want to know the benefit as of the following January then the difference in benefits for different starting months is apparent. As I mentioned, it's not clear to me if the small amount of "missing money" is ever recouped. I imagine so, but I have no factual information about that.

Anypia32 is published at least once a year, to include the last COLA, and in my experience maybe there's another update around mid-year or so.

Of course, the program does not _and cannot_ know what the COLAs are going to be in the future. So the numbers returned are all in "today's dollars".

 Good Luck!

[fffred]

@fffred 

fffred, I think that the CFR paragraph addresses the benefit (money) that is missing until the following January. They say,

"(c) When is the increase because of delayed retirement credits effective?—(1) Credits earned after entitlement and before the year of attainment of age 70. If you are entitled to benefits, we examine our records after the end of each calendar year to determine whether you have earned delayed retirement credits during the previous year for months when you were at or over full retirement age and you were fully insured and eligible for benefits but did not receive them. Any increase in your benefit amount is effective beginning with January of the year after the year the credits were earned."

The part I underlined seems to say that SSA only checks the benefit once per year, in January, and if the recipient took benefits at some intermediate month then the increase in total benefit will become effective in the following January. So that cash for the several months is lost forever... that's my interpretation.

In most cases the lost cash is probably immaterial. But the situation might be enough to prompt someone with some DRCs and intending to retire late in the year, say November, December, their call, to delay a few weeks until the following January. They won't lose a cent of their benefit then and in any case the benefit will be slightly greater due to the extra month or so of DRC.

Of course, anyone who waits until 70 is good at any month of the year.

-fffred

[MichaelC287014]

I have an update and one more question.

My wife signed up for SS mid August 2021. She was 67, one full year past her full retirement date. Her monthly SS started in September and her amount was the number reached in December 2020. We just received a letter from SS. They have bumped her monthly payment to the September 2021 amount for March 2022 and beyond.  They have also sent her an  adjustment check to compensate her for underpayment in January and February. The letter provides all of the details and matches my expectations for payment amounts.  

What is not mentioned is compensation for underpayment in 2021 when she got the December amount rather than the August amount.  This adds up to ~ $815 for the five 2021 payments.  I tried calling SS but gave up after being on hold for 45 minutes.  My question is will I be compensated for this 2021 underpayment or is this just the way the system works?

[fffred]

@MichaelC287014 

Those "missing benefits" due to the how the SSA re-calculates delayed retirement credits only in January of each year were long a mystery to me. I could never get clarity on this (though I never called the SSA and asked that specific question). I figured that "someone" would know about this on some of SS forums I frequent (Reddit, AARP, Bogleheads, a Facebook group, etc) but clarity never came. 

Until last fall in Bogleheads when this came. I can't direct you to one of the POMS (Program Operations Manual System) of the SSA about this particular issue. (The POMS is their "handbook" for how they interpret the Federal laws ("CFR" - Code of Federal Regulations). See the POMS here https://secure.ssa.gov/apps10/)

So some post in Bogleheads last fall related to this issue, of claiming with DRCs at some intermediate time in the year (any month except January). It seems (again, I can't point to a POMS that states this explicitly) that those months of the first year of benefits, which the benefit is based on the DRCs existing at January of that year, will not be "made whole" with a make-up check. The logic is that the benefit is recalculated for any DRCs that were earned during the past year. So the benefit is recalculated for the second year of benefits, and this is based on any additional DRCs earned in the preceding year...those "missing months". But the additional benefit amount for those missing months in the first year of benefits are not paid retroactively.

At the time, last fall, I was toying with the idea of claiming in December or January, or even beyond. With the thought that the "lost" benefit is not much. But after mulling over the discussions on Bogleheads I maintained my plan to claim at 70 (there are strict rules that when claiming at 70 you get the full benefit of all DRCs immediately, no waiting). I recently put in my application for age 70 and just waiting now.

Of course, I could be entirely wrong about those benefits not being paid. Maybe ask the SSA again.

[MichaelC287014]

Thanks again!

A friend - age 69 - signed up for benefits within the last year. His comment about the process was that the got more than he expected monthly and he received an "adjustment" check within a few months.  I plan to set my start date for November.  It will be interesting to see if the few month of missing benefit is really lost.  If it is lost then why wouldn't everyone start in December?  This might be a tougher decision if I were planning to start earlier in the year.