While the full retirement age is going through a slow change, the range when you can claim Social Security remains the same: from as early as 62 to as late as 70. By waiting, your monthly payout increases. If maximizing your payouts is the goal, then it clearly makes sense to wait until your 70th birthday to claim benefits.
But most Americans claim Social Security early, with 38% of men and 44% of women filing for benefits as soon as they become eligible. Some writers -- myself included from time to time -- look at this as a bad omen: a person is in desperate need of additional income or can't find a job, and settles for income through Social Security.
It's not that simple, though. There are actually a host of reasons to claim Social Security early that have nothing to do with needing an immediate paycheck. Below are the top three, in order of importance.
You'll be happier
Far and away, the very best reason to claim Social Security early is because it can make your day-to-day experience of life happier. Unless you're truly in love with your job, there's something that the added income of Social Security can buy you that nothing else can: free time.
Because of hedonic adaptation, we quickly get used to the nice car or fancy gadget that additional income can buy us. The boost of material affluence is temporary -- but we don't adapt to the pleasantness of time affluence.
If you don't believe me, check out the results of a Merrill Lynch/Age Wave study.
And before you think that the study singled out only the wealthy, the authors note that, "The sample is nationally representative of age, gender, ethnicity, income, and geography." Clearly, today's retirees have found out that freedom of time makes a huge difference.
Your time is limited
Knowing that the added income of Social Security can give you the freedom you need to live your Golden Years the way you want, it's important to maximize these years.
It might be a morbid topic to consider, but we all eventually meet our end. Using actuarial tables from the Social Security Administration, here's how many years you have left to live, depending on your current age.
On average, those who claim Social Security at 62 have a retirement that's over 40% longer than those who hold out all the way until 70. Why put off such a good thing when your time is limited?
The lifetime payouts are roughly equal
Finally, if you're a scrooge who really is set on maximizing your Social Security payouts, I've got news for you: The system is rigged against you. The monthly payments are coordinated with actuarial tables to ensure that, no matter when the average person claims, the fund pays out the same lifetime amount.
To get an idea for what I mean, let's assume that Walter is set to receive a benefit of $2,000 per month if he claims at the full retirement age of 66. Should he decide to file at 62, the monthly payout would be $1,500; if he waits until 70, $2,640.
Here's what the lifetime payouts amount to, based upon when he chooses to claim Social Security.
Until the age of 76, the earliest retiree gets the greatest benefit. And it isn't until Walter turns 82 -- when his mobility and spending habits have likely dropped significantly -- that his payout has a greater lifetime value.
I'm still decades away from being able to claim Social Security myself, but I know what my goal will be: getting the most life out of my Golden Years. Claiming Social Security early can help the vast majority of us do just that.