This article was updated on May 10, 2017.
Most self-described retirement experts will advise you to wait as long as possible before applying for Social Security benefits. But I'm here to tell you why this might be wrong for you.
The argument in favor of waiting goes something like this: By holding out until your full retirement age, if not longer, you increase the chances of maximizing your cumulative lifetime benefits. This follows from the fact that the size of your monthly checks is determined in part by when you apply for Social Security. If you apply at age 62, which is the earliest allowed, then your benefits will be 25% to 30% lower than your primary insurance amount -- that is, the benefit amount you're entitled to upon reaching full retirement.
By contrast, if you wait until you turn 70, which is the latest age at which you can claim benefits, then your benefits can be as much as 32% larger than they would have been had you taken them at age 66. In official Social Security jargon, these are known as "actuarial adjustments."
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Seems pretty cut-and-dried, right?
Well, it turns out that it's not as straightforward as it might first seem. This is because people who elect to take benefits early get more checks than those who wait. It's a trade-off. Do you want more checks that are smaller and come sooner? Or would you prefer fewer checks that are larger but come later in life?
To determine this, most experts will tell you to conduct a breakeven analysis, which is an arduous process of calculating how much you're likely to receive in total lifetime benefits based upon when you elect to receive them and how long you expect to live.
Aside from being speculative and thus prone to inaccuracy, a complicated analysis like this is unnecessary. I say this because the Social Security Administration designs the benefit formula to, on average, yield the same amount in lifetime benefits irrespective of when you begin receiving payments.
Here's how the U.S. Government Accountability Office explained this point in a report on retirement security: "The Social Security benefit formula adjusts monthly payments so that someone living to average life expectancy should receive about the same amount of benefits over their lifetime regardless of which age they claim."
Just to be clear, this shouldn't be taken to mean that it doesn't matter when you take benefits. If you're fortunate enough to live well into your 80s or beyond, then waiting will indeed result in a larger lifetime haul.
However -- and this point reveals the shortcomings of an impersonal breakeven analysis -- squeezing every last dollar out of the Social Security system isn't the typical American's main objective in retirement. You can infer this from the fact that 62 remains the most prevalent age at which people apply for benefits.
The objective is instead to facilitate an earlier retirement; it's to remove you from the stress of the workplace. For instance, the same GAO study cited above found that 61% of respondents between the ages of 60 and 62 who worked in fields such as farming, construction, and mechanics were in positions that involved "heavy lifting most or all of the time." Is this really something men and women in their 60s should be doing? I trust we can all agree that the answer is no.
The point here is that taking benefits early has less to do with fancy breakeven analyses and more to do with your personal goals for retirement. If you can wait to take Social Security benefits, that's great. Go ahead and do so. But if you can't or don't want to, then there's no reason to second-guess your decision to take them early.
