Every year you postpone claiming your Social Security retirement benefits, up to age 70, you add 8% per year to your base amount. What does this mean? If your full Social Security retirement age is 66, and you delay receiving benefits until you are age 70, you can collect 132% of your primary amount plus the intervening annual cost-of-living adjustments. This may result in an increased monthly benefit of several hundred dollars for the rest of your life.
In addition, if you are older than your full retirement age when you start receiving your Social Security benefits, you may be entitled to up to six months of retroactive benefits in one lump sum.
There is one downside to electing to take a lump sum retroactive payment of your benefits, however. While some of your Social Security benefit may be taxable, you must include the taxable part of a lump sum payment as part of your income when you pay your income tax for the year in which you received the lump sum. The amount of your benefit which is taxable varies depending upon your total income for any calendar year. If you receive income from an IRA or a 401K plan, you may have to pay tax on anywhere from 50% to 85% of your total Social Security benefit amount.