Retiring at age 70 will net you the biggest monthly Social Security benefit, but the amount you receive over a lifetime depends on your work history and your life expectancy. Will retiring at 70 pay off for you? Read on to see how much you can receive in lifetime benefits when you retire.
Understanding your options
You need 40 retirement credits to qualify for Social Security, and typically, you'll qualify for the program if your work record includes at least 10 years at a job that was subject to payroll taxes.
The amount you'll receive in Social Security benefits is based on your highest 35 years of earnings, and whether you claim your benefits early, at your full retirement age, or late. Your full retirement age is the age at which you can receive 100% of your monthly benefit, and it depends on when you were born. For instance, if you were born between 1943 and 1954, your full retirement age is 66, but if you were born in 1960 or later, your full retirement age is 67.
If you claim your Social Security benefits before reaching full retirement age, your benefit is reduced by a fixed amount for every month you claim early. The monthly reduction is five-ninths of 1% for up to 36 months, and if the number of months exceeds 36, then it's further reduced by a five-twelfths of 1% per month. If you claim benefits after your full retirement age, your benefits are increased by a fixed amount for every month you delay, up to age 70. For most people, delaying benefits increases benefits by 8% per year.
For example, if Jim's full retirement age is 66, and his full retirement age benefit is $1,000 per month, he'll receive $750 per month if he claims at age 62 or $1,320 per month if he claims at age 70. You can create a login to view your current projected Social Security benefit on Social Security's website.
How much can I get in lifetime benefits if I wait?
The increase in monthly benefits associated with delayed retirement credits can result in your collecting more in total lifetime Social Security income, if you live long enough. Social Security is designed to pay out the same amount in total lifetime benefits regardless of what age you claim, but it uses average life-expectancy tables in its calculations, so people with longevity on their side can collect more in benefits over time.
To illustrate how, let's consider how life expectancy might affect total lifetime benefits for Jim. In our previous example, Jim can collect $750 per month if he claims at age 62, $1,000 per month if he claims at 66 (his full retirement age), or $1,320 per month at 70.
Therefore, if Jim lives until 75, his total in lifetime benefits from claiming at either 62, 66, or 70 would be $126,000, $120,000, or $95,040, respectively. In this scenario, waiting to claim wouldn't pay off for Jim. If Jim dies at 80, his lifetime income from Social Security at these ages would be $171,000, $180,000, and $174,240. At this point, waiting is beginning to pay off for Jim. Now, if Jim were to live until 90 years old, his lifetime haul from Social Security would be $261,000, $300,000, or $332,640 if he claimed at 62, 66, or 70, respectively. Clearly, delaying benefits until 70 years old really pays off in this final scenario.
To further illustrate how waiting can increase your lifetime Social Security benefits, the following chart shows how much Jim would collect in lifetime benefits if he claims at age 62, 66, or 70 and he dies between the ages of 75 to 90.
Choosing when to claim Social Security benefits is a complex decision that will depend a lot on each person's specific situation, but since delaying benefits until age 70 can produce the greatest amount in lifetime benefits, it's important to consider your health and your life expectancy when deciding when to retire.