For most retirees, Social Security is more than just a monthly deposit into their bank account. It represents a financial foundation that many would struggle to survive without.
According to the Center on Budget and Policy Priorities, Social Security will lift more than 22 million beneficiaries above the federal poverty line by 2023, including 16.3 million adults aged 65 and older. Meanwhile, 24 years of annual Gallup surveys have revealed that 80% to 90% of retirees rely on their monthly income to some extent to cover their expenses.
The point is that maximizing the amount beneficiaries receive from Social Security is not a luxury; it is a necessity for the majority.
However, in order to maximize your benefit from America’s leading retirement program, you must first understand how it is calculated. Only then can you fully understand how much an early (age 62), middle-aged (e.g., age 67), or late (age 70) Social Security claim can influence the monthly and lifetime payout pendulum.
These four variables are used to calculate your monthly Social Security payout
Without getting into the minutiae, your Social Security check is determined by four broad-based factors:
Work history
Earnings history
Full retirement age
Claiming age
The first two factors, your work and earnings histories, are intertwined. The Social Security Administration (SSA) will calculate your monthly benefit based on your 35 highest-earning, inflation-adjusted years. In theory, if you earned an above-average wage or salary over several decades, you should receive a higher-than-average Social Security benefit.
But there is a catch to this calculation. If you do not have at least 35 qualifying years of work experience, the SSA will factor a $0 into your calculation for each year you worked less than 35. Regardless of how much you earn per year, you won’t be able to maximize your monthly payout unless you have at least 35 years of qualifying work.
The SSA uses your full retirement age as the third variable when calculating your payout. This is the age at which you are eligible to receive 100% of your monthly benefit, and it is entirely determined by your birth year. Anyone born in or after 1960, which includes the majority of today’s labor force, will reach full retirement age of 67.
Your claiming age is the final criterion, and it has arguably the greatest influence on how much you receive from Social Security. Even though retired workers can begin receiving their payout as early as age 62, their benefit can increase by up to 8% per year for each year they wait, as shown in the table below.
| 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% |
There are clear pros and cons to collecting benefits at 62, 67, and 70
Every age group within the traditional claiming range of 62 to 70 has distinct advantages and disadvantages. However, in the coming years, the extremes (62 and 70), as well as a very specific middle-ground age (67), should be particularly popular for initial collection.
Age 62
There are two distinct advantages to claiming at the earliest possible age. First, retirees do not have to wait to receive their benefits. The other allure is that filing an early claim may be viewed as a way to avoid potential Social Security benefit cuts, which are currently scheduled to take effect in 2033.
However, collecting at the age of 62 will permanently reduce your monthly payout by 25% to 30%, depending on your birth year. Furthermore, early filers may be subject to additional penalties, such as the retirement earnings test, which allows the SSA to withhold some or all of your payout if you earn more than certain income thresholds.
Age 67
The middle-ground approach is appealing because it ensures that recipients receive 100% of their entitlements while remaining young enough to enjoy the income. Furthermore, because age 67 is the full retirement age for the majority of the labor force, it is a reasonable claiming target.
The potential disadvantage of collecting at age 67 is that you may be leaving a significant amount of lifetime Social Security income on the table if you live well into your eighties.
Age 70
The patient approach is appealing because it ensures that you will use your monthly benefit to the fullest extent possible. Depending on your birth year, you’ll receive 24% to 32% more per month at age 70 than you would at full retirement age.
The concern with waiting eight years after initial eligibility to receive your first Social Security check is that you may not live long enough to maximize your lifetime benefit, which is the ultimate goal of Social Security.
The most important question is: which initial collection age is best?
Although ages 62, 67, and 70 each have unique disadvantages, a comprehensive study published in 2019 provides a clear answer.
A statistically superior Social Security claiming age does exist
Six years ago, researchers at online financial planning company United Income published a study (The Retirement Solution Hiding in Plain Sight) that used data from the University of Michigan’s Health and Retirement Study to analyze the Social Security claiming decisions of 20,000 retired-worker beneficiaries.
This study extrapolated these claiming decisions to determine whether any initial collection ages were optimal. In this sense, a “optimal” claim would maximize the beneficiary’s lifetime income.
The main takeaway from United Income was not surprising: nearly all beneficiaries made poor claiming decisions.
Because we never know when we’ll die, the Social Security claims process will always include some educated guesswork.
Furthermore, we each have our own set of variables to consider when making a claims decision. This can include our personal health, marital status, financial requirements, tax implications, and a variety of other considerations. The point is that there is no one-size-fits-all blueprint for claiming Social Security benefits.
However, one finding from the United Income study stood out. Researchers found that the initial claims of retirees and the extrapolated optimal claims were nearly a perfect inverse of each other.
For example, 79% of the 20,000 retired workers surveyed chose to begin receiving benefits at the ages of 62, 63, or 64. However, only 8% of these 20,000 retirees would have maximized their lifetime Social Security benefits at these three ages.
When the pendulum swung in the opposite direction, United Income discovered that 57% of all analyzed claimants would have maximized their lifetime benefit by waiting until the age of 70. This figure was more than five times higher than the proportion of retired workers who would have maximized their payout at age 67.
To be clear, this does not imply that every future retiree should wait until 70 to receive their payout. There are numerous viable reasons for filing an early claim, including poor health.
Nonetheless, United Income’s extensive research demonstrates that a statistically superior claiming age does exist. Future retirees should think about delaying Social Security benefits.
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