The simple way to maximize how much money you get from Social Security annually is to delay claiming Social Security benefits until age 70. Claiming earlier (you can claim as early as 62) means that your annual benefits will be substantially reduced -- and yet, according to a study conducted by the Transamerica Center for Retirement Studies (link opens pdf), only about one percent of retirees currently taking Social Security benefits waited until they were 70 to claim. The median age at which current beneficiaries claimed Social Security was 62, indicating that the vast majority of retirees were willing to take the benefit reduction in exchange for getting the money sooner.
Here's why most Americans don't wait until 70
Simply put, most Americans don't have the money to wait. That's in part because most retirees and near-retirees don't have nearly enough money to cover their retirement expenses. According to the Transamerica study, the median household aged 60-64 has savings of approximately $202,000. Let's assume baby boomers follow the 4% retirement rule, a commonly used guideline that assumes you can spend 4% of your savings in your first year in retirement and then adjust for inflation in the future. That means the median household aged 60-64 could spend a little over $8,000 of their savings in their first year of retirement. That's just not enough to live on.
Another major issue is that a full 60% of retirees retired earlier than they had planned. And of those who retired earlier, about two-thirds retired because of job-related issues, such as taking a buyout, losing their job, or organizational changes at work. Another 27% retired early because of poor health -- which is a double hit financially, as they lose their wages and have to spend more on healthcare.
Given these issues, it's no wonder Americans aren't holding out until age 70; in most cases, they exit the workforce earlier than expected and don't have the savings to sustain themselves while delaying taking Social Security.
Is delaying taking Social Security until 70 the right choice?
The best age to take Social Security really depends on the person and their circumstances. There are a ton of cross-cutting issues that affect the calculus. For example, if you are like the average retiree and have very little money in savings, then you may be better served by taking Social Security early so you don't suffer an enormous reduction in your standard of living when you retire.
Consider as well how healthy you are at retirement. Those who don't expect to live as long as the average retiree (the average man turning 65 today should live to 84.3, while women can expect to make it to 86.6) may serve their families better by pulling in as many of those Social Security checks as possible before they pass away. The breakeven age for taking Social Security at full retirement age (which is between 65 and 67, depending on your age) versus taking Social Security at 62 is between 80 and 90, depending on the assumptions you put into your breakeven analysis. For those with reduced life expectancy, filing early would generally appear to be the best move.
On the flip side, Social Security guarantees that your benefits will grow by 8% annually for each year you delay taking benefits after full retirement age (assuming you were born after 1942), while claiming at 62 reduces your benefit by about 30% compared to full retirement age. So there is definitely an argument for delaying those benefits -- compounded by the fact that you can likely expect your healthcare expenses to increase as you age (which will make that extra cash flow a lot more necessary). Oh, and spousal benefits further complicate the picture.
At the end of the day, you'd do best to run the numbers yourself (we have a helpful Social Security calculator, as well as a number of other useful retirement tools, on our main calculators page) and figuring out how the issues I've highlighted above might impact your financial outlook in retirement. Most importantly, remember this quote, from none other than the Social Security Administration itself: "As a general rule, early or late retirement will give you about the same total Social Security benefits over your lifetime."
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