Social Security is a cornerstone of financial security for most retirees. For many, it’s more than just a monthly deposit; it’s the financial foundation that helps cover a significant portion of retirement expenses.
A 2023 study by the Center on Budget and Policy Priorities revealed that 22 million Americans were lifted above the poverty line by Social Security, with 16.3 million of those being over the age of 65.
Additionally, 80% to 90% of retirees rely on their monthly benefits to meet their living costs, making it essential to understand how to maximize those payments.
How Your Social Security Benefit Is Calculated
To get the most from Social Security, it’s crucial to understand how your benefit is calculated. The amount you receive depends on four main factors:
- Work History
- Earnings History
- Full Retirement Age
- Claiming Age
These factors are interwoven. The Social Security Administration (SSA) calculates your monthly benefit by considering your 35 highest-earning years, adjusting for inflation. If you don’t have 35 years of qualifying work, the SSA will factor in zero earnings for the years you’re short, which reduces your benefit amount.
Your full retirement age (FRA) is the age at which you can receive 100% of your benefit. If you were born after 1960, your FRA is 67. If you claim early, before your FRA, your benefits will be reduced. The age at which you claim benefits significantly impacts how much you’ll receive.
The Impact of Claiming at Different Ages
Social Security benefits can be claimed as early as age 62, and the amount you receive will vary depending on when you file. Here’s a breakdown of what you can expect at ages 62, 67, and 70:
| Birth Year | Age 62 | Age 67 | Age 70 |
|---|---|---|---|
| 1943-1954 | 75% | 100% | 132% |
| 1955 | 74.2% | 98.9% | 130.7% |
| 1960 or later | 70% | 100% | 124% |
The Pros and Cons of Claiming at Different Ages
Age 62: Early Claims
The earliest age to claim benefits, 62, can be appealing for those who need the money sooner. However, claiming at 62 means accepting a permanent reduction in your monthly payout by 25%-30%, depending on your birth year.
Additionally, if you continue to work while receiving benefits, the retirement earnings test could reduce or withhold your benefits if your earnings exceed certain limits.
Age 67: Full Retirement Age
Claiming at 67 gives you 100% of your scheduled benefits. It’s a reasonable choice for those who want a balance between getting their benefits on time and maximizing the amount they receive. However, the downside is that if you live into your 80s or 90s, claiming at 67 may mean leaving significant lifetime income on the table.
Age 70: The Maximum Benefit
Claiming at 70 guarantees you the highest possible monthly benefit, as your payout increases by 8% per year between age 67 and 70. For many, this is the optimal choice, especially if they expect to live into their late 80s or beyond.
However, waiting until 70 means delaying benefits for up to eight years, which may not be ideal for those with poor health or immediate financial needs.
What the Data Says: Optimal Social Security Claiming Age
A 2019 study from United Income used data from the University of Michigan’s Health and Retirement Study to analyze the claiming patterns of 20,000 retired workers.
The study found that most people claim too early, at ages 62-64, but those who waited until 70 saw a 57% improvement in lifetime Social Security benefits compared to those who claimed early.
In fact, the study highlighted that only 8% of retirees who claimed benefits at 62, 63, or 64 would have optimized their lifetime Social Security income. On the flip side, 57% of retirees would have been better off waiting until age 70.
While the study didn’t suggest that everyone should wait until 70, it did point out that waiting can significantly boost long-term financial security.
What Should You Do?
When deciding when to claim Social Security, it’s important to consider your personal health, financial needs, and life expectancy. For many, delaying benefits until 70 maximizes their payout. However, some may need the benefits earlier, especially if they’re facing health issues or have immediate financial concerns.
The $23,760 Social Security Bonus You Might Be Overlooking
Many retirees miss out on little-known strategies that can boost their Social Security income, such as optimizing spousal benefits or filing at the right time. Utilizing these strategies could add an extra $23,760 to your retirement income, ensuring that you get the most out of your Social Security benefits.
