For many seniors, Social Security plays a vital financial role during retirement. According to Gallup's 2015 poll, 59% of current retirees count on Social Security to be a major source of their income, whereas another 31% consider it a minor source. Put in another light, 9 in 10 Americans could be in financial trouble if Social Security didn't exist.
Yet, choosing when to collect Social Security could greatly impact to what extent seniors rely on the program, as well as how much they'll earn over their lifetime.
The average age seniors begin collecting Social Security
The Social Security system is designed to reward those who wait. Benefits can be collected as early as age 62, but for each year that a senior waits to collect, the amount they'll receive once they do file for benefits increases by 8%. The magic number that most seniors are taught to pay attention to is their full retirement age, or FRA. This is a dynamic number that changes based on the year you were born, and it determines at what age you're entitled to receive 100% of your Social Security benefit. In plainer terms, if you file for benefits prior to reaching your FRA, your payment will be 25% to 30% lower than your FRA benefit for life. On the flipside, waiting until age 70, which is where your benefit increases max out, can result in a payment of up to 132% of your FRA.
So at what age does the average American begin collecting Social Security benefits? According to a study recently conducted by the AP-NORC Survey Center of 1,075 adults ages 50 and up, the average retiree begins collecting benefits at age 64.
The data from AP-NORC's study correlates very well with data published by the Centers for Retirement Research at Boston College in 2013, which looked at the distribution of filings by age. Based on the CRR's findings, some 42% of men and 48% of women claim Social Security benefits as soon as they can at age 62. Furthermore, 56% of men and 64% of women claim their Social Security benefits well before hitting their FRA. By comparison, just 9% of men and 10% of women wait until after their FRA to file for benefits.
Chart by author. Data source: Centers for Retirement Research at Boston College via Social Security Administration. Figures are from 2013.
"When is the best time to file for benefits?" you might be wondering? The answer is that it's different for everyone. Some seniors benefit from collecting benefits early, while others have incentives to wait and collect bigger payments later in life.
Why joining the crowd could be a good move
Joining the crowd and claiming benefits early could be an especially smart move if Social Security isn't going to comprise much of your retirement income. If you've been diligently saving your money for decades and have ascended well beyond your retirement number, then the additional money received from Social Security probably isn't going to impact your spending habits. Filing early for benefits could allow well-to-do persons an opportunity to use their payments to cover travel expenses or pay for other passions.
Seniors in poorer health can also benefit from collecting benefits sooner rather than later. Although we can never know for certain when our time is up, our family history and personal health history can help us gauge how long we might live. Right now, age 78 tends to be the inflection point at which early filers (those collecting at age 62) and late filers (people who sign up at age 70) have collected similar lifetime benefits. If you believe you won't make it to age 78, then collecting benefits earlier would make sense.
Filing for benefits early is also a popular option for lower-earning spouses. It makes sense to allow the higher-earning spouse to hold off on collecting benefits in order to boost a couple's total income later. In response, the lower-earning spouse can file for benefits so the couple at least receives some income.
When being a Social Security rebel is warranted
Then again, there are seniors who may benefit from going against the grain.
As we saw above, higher-income spouses and healthier individuals are two groups of seniors who are going to get more out of the program by holding off on claiming benefits. With life expectancies on the rise, the idea of holding off is beginning to pick up steam -- but based on CRR's data, it obviously still has a long way to go.
Additionally, but most importantly, waiting to collect benefits makes sense for seniors entering retirement with little to nothing saved up. Your initial inclination if you haven't saved any money for retirement might be to file as early as possible (age 62) to begin receiving income. Unfortunately, if you do this you may wind up having your benefits withheld if you earn too much before reaching your FRA, and you'll be stuck with a reduced payment for the rest of your life. That's hardly an ideal situation if Social Security is your sole source of income.
Instead, working for as long as possible and allowing your wages to cover your monthly expenses is optimal. This way you can potentially maximize your Social Security benefit by waiting, and you may even be able to put a few dollars away in savings by working for a few extra years. Not to mention that working longer could give you the opportunity to boost your benefits payment by replacing a previously lower year of earnings with a higher one (the Social Security Administration averages your highest 35 years of earnings to determine your benefit payment).
At what age are you planning to collect Social Security benefits? Share your thoughts below.
