For an average retiree who relies on Social Security, this income isn’t just extra spending money; it forms the backbone of their finances, making life much harder without it.
In 2023, the Center on Budget and Policy Priorities projected that
Social Security
lifted 22 million individuals out of federal poverty, with 16.3 million being seniors aged 65 and older. An independent survey conducted by renowned polling organization Gallup in April 2024 focusing specifically on retirees revealed that 88% of participants depended on these payments, at least partially, for covering their living costs.
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The financial security of retirees often relies heavily on optimizing their benefits from Social Security. However, to get the most out of these payments, individuals must grasp the intricacies of how their specific benefit amount is determined and appreciate how delaying or early collection at various ages can affect both their monthly checks and total lifetime earnings.
There’s a
big
difference
ranging from taking benefits as soon as possible at age 62 to holding off until the end of the conventional claiming period at age 70.
Four factors are utilized to determine your monthly Social Security benefit amount.
America’s premier retirement plan may be somewhat complex to grasp initially. Nonetheless, the four factors utilized by the Social Security Administration (SSA) for determining your monthly benefit amount after retiring are fairly straightforward.
- Work history
- Earning history
- Full retirement age
- Claiming age
To figure out the size of your monthly Social Security payment after retiring, the SSA considers your 35 most lucrative, inflation-adjusted years when computing this amount. This record encompasses what’s termed “earnings,” specifically referring to wages and salaries rather than investment gains. Typically, individuals who have consistently earned more over their lifetimes can expect larger retired-worker benefits from Social Security.
The caveat with this calculation is that the SSA will reduce your benefit by incorporating an average of $0 for each year below 35 that you’ve actually worked. Individuals aiming to maximize their potential Social Security benefits should consider working for at least 35 years, or preferably longer.
The third component, known as the full retirement age, signifies the point at which you qualify for receiving your complete monthly retired-worker benefit amount.
depends solely on the year you were born
, so it’s something beyond your control.
Conversely, asserting that age has a greater impact on benefit payouts than any other factor, you also have the option to decide when to first claim your benefits. Even though retirees may opt to receive their Social Security checks beginning at age 62,
There’s an economic motivation to practice restraint.
For each year a worker delays collecting benefits from age 62 to 70, their payment amount could increase by as much as 8%. The relationship between this delay period and the increased payouts is illustrated in the subsequent chart.
|
Birth Year |
Age 62 |
Age 63 |
Age 64 |
Age 65 |
Age 66 |
Age 67 |
Age 68 |
Age 69 |
Age 70 |
| 1943-1954 | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% | 132% |
| 1955 | 74.2% | 79.2% | 85.6% | 92.2% | 98.9% | 106.7% | 114.7% | 122.7% | 130.7% |
| 1956 | 73.3% | 78.3% | 84.4% | 91.1% | 97.8% | 105.3% | 113.3% | 121.3% | 129.3% |
| 1957 | 72.5% | 77.5% | 83.3% | 90% | 96.7% | 104% | 112% | 120% | 128% |
| 1958 | 71.7% | 76.7% | 82.2% | 88.9% | 95.6% | 102.7% | 110.7% | 118.7% | 126.7% |
| 1959 | 70.8% | 75.8% | 81.1% | 87.8% | 94.4% | 101.3% | 109.3% | 117.3% | 125.3% |
| 1960 or later | 70% | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% |
Data source: Social Security Administration.
The pros and cons of claiming benefits at age 62 versus age 70 are quite distinct and defined.
Even though the figures in the table vary significantly, each claiming age between 62 and 70 has its own set of benefits and downsides.
Let’s examine more closely these advantages and disadvantages for the two extremes within the conventional claiming spectrum: ages 62 and 70.
Age 62
A clear benefit of starting to collect benefits at age 62 is avoiding the delay before you can access them. This might be especially appealing for retirees who are not employed or lack another steady income stream, as well as those aiming to reduce their debts.
Moreover, some of the initial applicants might aim to preempt anticipated reductions in Social Security payments within just eight years. The Old-Age and Survivors Insurance Trust Fund (OASI) is projected to deplete its reserve assets by 2033. Should the OASI’s funds become exhausted, retirees and surviving dependents could face financial difficulties.
would face extensive benefit reductions of up to 21%.
.
Conversely, opting to start receiving retirement benefits for workers who have stopped working at age 62 entails a permanent decrease in the monthly payment amount, which can range between 25% and 30%, based on when you were born.
Furthermore,
Individuals who file their claims early may come under the retirement earnings test.
, which allows the SSA to withhold some or all of your benefit if you earn above select income thresholds.
Age 70
On the opposite end of the spectrum, choosing to gather benefits at age 70
guarantees you’ve optimized your monthly income from Social Security
Depending on when you were born, the boost in benefits can range from 24% to 32% more than what you would get upon reaching your full retirement age.
The possible drawback is that there’s no assurance you will live sufficiently long to optimize your lifetime earnings by waiting until age 70 to claim.
Having gained deeper insights into why retirees opt to start receiving their benefits at age 62 or 70, we can now revisit our main query: Should you claim your retired-worker benefit at 62 or wait until 70?
A
A comprehensive study published six years ago can directly address this issue.
.
Someone asserts that age has statistical superiority over everyone else.
In 2019, experts from the online financial planning firm United Income published an extensive report.
The Overlooked Retirement Strategy Right Before Our Eyes
That analyzed the Social Security claiming choices of 20,000 retirees by utilizing data from the University of Michigan’s Health and Retirement Study.
The objective of United Income was straightforward: to assess how many retirees were making optimal choices when deciding at what age to claim their benefits. Here, “optimal” means choosing the age that would yield the maximum benefit.
lifetime
income for retirees.
The initial finding of the research didn’t come as a shock:
Only 4% of retirees who receive benefits have maximized their payments.
.
This remarkably low number is partly because none of us know our “expiry date” beforehand. Since we’re unaware of when our time will end, this remains unknown.
There will always be a certain level of informed speculation or luck involved.
When selecting the optimal initial collection age.
Moreover, each person must take various factors into account when determining the optimal age for their first claim. Elements like availability of retirement funds, required income levels, tax consequences, marital situation, and individual health all play roles in the Social Security filing decision and vary significantly from one person to another.
Nevertheless, one discovery from United Income’s research stood out as particularly significant. The study highlighted an evident reversal when comparing actual versus ideal claiming ages.
For instance, out of the 20,000 retirees surveyed, 79% started collecting their Social Security benefits at age 62, 63, or 64. However, according to researcher projections, merely 8% of these individuals would have had the most advantageous outcomes if they claimed benefits between those ages. In essence,
Very few initial applicants managed to secure as significant benefits from Social Security as they possibly could.
.
In contrast, despite the fact that just a tiny fraction of the retirees examined initially chose to take their payment at age 70, it
would have been ideal for 57% of the 20,000 retirees reviewed
The likelihood of maximizing lifetime Social Security benefits at age 70 was significantly greater compared to any other age within the conventional claiming window.
To make this point crystal clear, United Income’s research does not imply that every single future retiree needs to delay receiving their Social Security benefits until they reach 70 years old. Individuals who earn less, older adults lacking another steady stream of income, as well as those dealing with persistent health issues that might affect their lifespan, all have valid reasons for opting to receive their payments much earlier than turning 70.
However, when considering the tens of millions of workers who will become eligible for a Social Security benefit in the coming years and decades, statistics indicate that most could increase their total earnings over their lifetimes by being patient.
The $
22,924
The Social Security benefit many seniors fail to notice.
If you’re similar to many Americans, you might be lagging several years—or even more—behind on your retirement savings. However, some lesser-known “ Social Security tips” may assist in increasing your retirement earnings. For instance: one simple strategy could net you an additional $
22,924
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Check out the “Social Security Secrets” »
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