Millions of baby boomers are fast approaching retirement, and most of them are debating when to claim their Social Security benefits. Social Security checks are smaller when benefits are taken early, but that doesn't necessary mean it's a better bet to wait to claim your benefits.

Because everyone's situation is different, there's no single "right" age to claim Social Security. However, breakeven analysis suggests that claiming benefits sooner, rather than later, can net you more in lifetime benefits. Here's how.

A businessman in his 50s sits thinking behind a desk.

IMAGE SOURCE: GETTY IMAGES.

Calculating your Social Security income

Social Security will pay the average retired worker $1,460 in monthly benefits this year, but your Social Security income in retirement could be much different from that figure.

The size of your Social Security check depends on a complex calculation based on your income from 35 highest-earning years. Your income over those 35 years is adjusted for inflation, added up, then divided by 420, which is the number of months in 35 years. The result is your average monthly inflation-adjusted income, which is then subjected to multipliers at specific income thresholds to calculate your primary benefit amount: the amount you'd receive if your filed for Social Security at full retirement age.

As a refresher, your full retirement age is the age at which you can receive 100% of your primary insurance amount, and it varies depending on the year in which you were born. You can find out what your full retirement age will be here, but in 2017, the full retirement age is 66 and 2 months.

After your primary insurance amount is determined, the amount you'll actually receive per month in benefits depends on when you claim your benefits. If you claim them early, your benefits will be reduced by a fixed percentage for every month prior to your full retirement age that you take them. For example, if your full retirement age is 66 and 2 months, and you claim at age 62, then your benefit would be reduced by about 26%.

Since this calculation can get complex, it might be easier for you to estimate your payout for various ages using this calculator, or to find out your actual benefit by logging into the Social Security Administration's website, which you can do by creating a user ID here.

Taking Social Security early versus on time

You'll only get your full retirement benefit if you claim at your full retirement age, but claiming at 62 and pocketing those smaller payments for a longer period could still lead to you receiving more in lifetime benefits than you'd get if you waited.

An example: Jane will receive $1,000 in monthly benefits at her full retirement age of 66 and 2 months; if she claims at 62, she will receive $741 per month. If you add up all the monthly payments she'll receive if she claims at 62, and then you compare that figure to the total income she'll receive if she waits until full retirement age, you'll find that the total amount Jane collects after waiting doesn't eclipse the amount she'd collect by claiming early until she's in her late 70s.

A chart showing where total benefits collected in Social Security intersect if claimed at age 62 or age 66 and 2 months.

DATA SOURCE: SOCIAL SECURITY ADMINISTRATION. AUTHOR'S CHART.

 
If Jane has other sources of retirement income, and she is financially able to invest some or all of her Social Security income, then the breakeven point could get pushed back even further than that. 

A few things to consider

If you plan on taking benefits at 62, rather than 66, and you plan to continue working, then you should factor into your decision that the Social Security Administration will reduce your monthly income if your earnings exceed limits. For instance, monthly benefits are reduced by $1 for every $2 earned above $16,920 this year. Any money that's held back, however, will be added back to your benefit once you reach full retirement age, and there's no income limit once you hit full retirement age. 

You will also want to keep in mind that if your earnings eclipse limits,  your Social Security income could be subject to income taxes, which can significantly change your breakeven point.  

Ultimately, when to claim Social Security is a personal decision, and what works for one person may not be what's best for someone else. Therefore, consider your specific financial situation, retirement goals, and health before deciding when to file for your benefits. 

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