DRC? Although a quick google search might suggest the Democratic Republic of the Congo, in this particular situation DRC stands for Social Security’s “Delayed Retirement Credits” and what a winner they can be if you capitalize on them.
The idea of DRC’s is that the longer you wait to receive your Social Security Retirement Benefit the greater the benefit will be. “How great?” you ask. For those of you turning 70 in 2018—and just starting your Social Security Retirement—32% greater than if you had started your benefit at age 66 (8% per year, not compounded, to be exact)! In other words, let’s say your Full Retirement Age (FRA) benefit at 66 would have been $2,000/month, if you wait until 70 to claim, it will be $2,640/month. The FRA is gradually increasing to age 67 for those born in 1960 or later so instead of a maximum 32% for the four years of delaying, these retirees will receive a maximum 24% increase for their three years of delaying commencement of the benefit.
A Retirement Mistake Most People May Make
Statistically speaking, a large number of recipients start collecting their benefits at age 62. And instead of receiving DRC’s, these folks receive significantly reduced monthly benefits because they will be collecting for longer. The bottom line is that if your budget is tight, and there and no other resources, collecting at 62 may be your only option. However, for everyone else, taking a long hard look at receiving at least some DRC’s—if not all—makes a whole lot of financial sense because that 8% increase per year for waiting, with ongoing adjustments for inflation, is something that you can never outlive.
And that leads to my final point, instead of thinking about the “break even” point attained by starting your benefit at the earliest age of 62, think about the “longevity insurance” you’re purchasing by maximizing your DRC’s. Having failed to “break even” when you pass away shouldn’t be a major concern whereas having a generous benefit while still going strong in your 80’s, 90’s (and beyond?) will be very comforting and rewarding.
For a more comprehensive blog post on this and additional Social Security issues see my 2017 post.
