Millions of Americans are fast-approaching retirement, and when they retire, most of them will count heavily on Social Security for financial security. Although you can receive benefits at any age after turning 62, there are distinct advantages associated with taking it as soon as you can and waiting to claim, and that makes this decision incredibly difficult.

What it doesn't do

Social Security doesn't provide retirees with the same level of income they were making prior to retirement. In fact, Social Security is designed so that the average person nets only about 40% of their pre-retirement pay in benefits. For perspective, the average retired worker is collecting just $1,360 per month in Social Security income in 2017.

A businessperson sits contemplating various options.

Image source: Getty Images.

Unfortunately, that amount is often insufficient. According to the Social Security Administration, 21% of married couples and 43% of single retirees rely on Social Security for 90% of their annual income, yet the Bureau of Labor Statistics estimates the average retired household spends $44,664 per year.

Because spending far outstrips Social Security income in retirement, Social Security income alone doesn't necessarily guarantee financial security in your golden years.

What it does do

Social Security provides a valuable financial safety net to millions of retirees, but the amount of Social Security income each recipient receives depends on a complex calculation.

People who qualify for Social Security have the amount of their benefit determined by a formula that adjusts 35 years of monthly income into today's dollars, and then reduces that amount at specific intervals by multipliers. You can estimate your projected payment by using one of Social Security's calculators, or you can view your projected payment by logging into the Social Security Administration's website. 

Although the average amount that is paid out to retirees differs significantly from person to person, the following chart shows the distribution of monthly payments, and it suggests that most people end up receiving between $800 and $1,800 per month in benefits.

A chart showing the distribution of Social Security income by amount.


When is it best to claim?

You can claim Social Security as young as age 62, however, the amount that you'll receive at 62 will be less than if you wait. The Social Security Administration only pays out 100% of your benefit if you claim at your full retirement age, and that age depends on the year you were born in. For example, the full retirement age for people turning 62 this year is 66 and 2 months, however, if you were born in 1960 or later, the full retirement age is 67.

If you claim benefits at age 62, the amount you'll receive will be reduced by a fixed percentage for every month that you claim prior to reaching your full retirement age. For example, a person with a full retirement age of 66 who claims at age 62 would receive only 75% of the amount they would otherwise receive at their full retirement age. 

Alternatively, if you wait to claim until after you reach your full retirement age, you can get more money from Social Security monthly. The Social Security Administration rewards those who wait to claim with delayed retirement credits for every month they put off claiming. For instance, a person with a full retirement age of 66 who claims at age 70 can receive 132% of the benefit they would otherwise receive at full retirement age. Overall, your benefit grows by about 8% annually for every year you delay claiming, until you reach age 70. 

This next chart illustrates how claiming at various ages can impact Social Security income for someone scheduled to receive $1,000 in monthly benefits at their full retirement age of 66. 

A chart showing the various amounts someone could receive in Social Security benefits depending on the age at which they claim.


At first blush, the extra amount that can be received by waiting to claim until 70 appears to make waiting the smartest decision. However, it's important to remember that the amount that is paid out in benefits over a lifetime is calculated to be the same, regardless of what age you claim.

Therefore, delaying when you claim until 70 may produce bigger checks than claiming early, but it also results in the typical recipient collecting fewer checks in their lifetime than if they claimed early. Obviously, if you have longevity in your family tree, waiting could allow you to come out ahead, but assuming the average person's life expectancy, collecting more, smaller checks might be best, especially if you can invest some of that money.

For example, the following chart shows the various break-even points associated with claiming at 62, 66, or 70 for someone who is set to receive $1,000 at their full retirement age of 66. Waiting until 70 doesn't break even with claiming at age 62 until the recipient hits their late 70's. If someone claims at 62 and invests some of their benefits, this break-even point could get pushed even further back.

A chart showing the various breakeven points depending on when you claim Social Security benefits.

Data source: Author's calculations.

Lots to consider

In many cases, deciding when to claim depends less on your expectations for total lifetime benefits than on personal matters. Although many people expect to work well into their 60s, job losses are a common reason why people claim benefits sooner, rather than later. The health of you or your spouse is also an important factor to consider, as are retirement goals, such as travel. 

Overall, someone who is healthy and enjoys their work might decide it's smarter to wait to claim benefits so that they can pocket bigger checks, while someone who is less healthy, or needs to stop working, might find it's wisest to claim benefits at 62.