Social Security is arguably the most important social program for the 42 million-plus retirees that are currently receiving a monthly stipend. A majority of these retired workers -- 62%, to be exact, according to data from the Social Security Administration (SSA) -- rely on their monthly check to account for at least half of their monthly income. About a third of all retirees rely on Social Security for 90% to 100% of their income. Social Security simply is that important.
Unfortunately, if you don't understand the ins and outs of Social Security before retirement, you could wind up making a claiming decision that you'll later regret (and that could leave tens of thousands of dollars in lifetime benefits on the table). So, what's the ideal age to begin taking Social Security benefits, you ask? Let's take a look.
Four factors that determine your monthly payout
Before we get into some of the specific situations of what age(s) to claim would make the most sense, it would probably be best to provide some brief background on how your Social Security benefits are calculated, and what you can control.
Four factors weigh into your eventual monthly payout:
- Your work history.
- Your earning history.
- Your claiming age.
- Your birth year.
This latter factor you can't control. Utilizing this handy table from the Social Security Administration you can locate when you'll have reached full retirement age, or FRA. Your FRA is the age at which you are deemed eligible to receive 100% of your monthly benefit.
Claim at any point between age 62 (the earliest age at which you can claim Social Security benefits) and a month before your FRA, and you'll accept a permanent reduction in your monthly payout. Wait until at least a month after your FRA or later, and you'll actually be paid more than what you'd have received at your FRA. Thus, while you can't control your FRA, you can modify what benefit you'll receive by waiting longer. Benefits grow an average of 8% annually beginning at age 62 and stopping at age 70.
The other two factors, your work and earnings history, are mostly interconnected. The SSA will take into account your 35 highest-earning years when calculating your retirement benefit. Therefore, it's in your best interests to work at least 35 years, if not more, and earn as much as you can when you work. Each year less of 35 worked will result in a $0 being averaged into your annual earnings, which will reduce your retirement benefit from the SSA.
What's the ideal age to take Social Security benefits?
Now that you have a better idea of the four factors that determine your eventual payout, let's look at what age you should reasonably consider taking Social Security benefits. I want to preface that there is no concrete answer for everyone given that financial and personal matters are likely to weigh on your claiming decision.
Claim between ages 62-64
- Those in poor health: If you're in poor health, or you have a family history that suggests those in your family don't live to the average life expectancy in the U.S. of 78.8 years, according to the Centers for Disease Control and Prevention, it might be wise to consider taking benefits earlier rather than later. If you pass away before age 78 and claim at age 62, you're liable to maximize what you'll receive in lifetime benefits from Social Security. Of course, predicting your expiration date is really nothing more than a crapshoot, so take this suggestion with a grain of salt.
- People with limited earning capacity: If you were laid off and are struggling to find work, you may not have much choice but to claim Social Security benefits early. The good news is there's a "mulligan" of sorts, known as SSA Form 521, which allows you to withdraw your request for benefits and pay back every cent you've received within the first 12 months if you happen to land a well-paying job. This way your benefits can grow once again, and it'll be as if you never filed early.
- Lower-income spouses: If there's a pretty wide gap in lifetime earnings history between you and your spouse, the lower-income spouse would probably be best served claiming early and generating income for the household. It makes far more sense to allow the larger future benefit payment to grow at 8% per year than the smaller income stream.
- Wealthy individuals: While not always the case, those folks who aren't expected to be reliant on Social Security income whatsoever can benefit from claiming early and utilizing their monthly income to pay for travel and other retirement luxuries. Plus, taking a reduction from your FRA benefit by claiming early might help lower your tax liability during retirement.
Claim between ages 65 and 67 (full retirement age)
- People in good health: If you'd consider yourself to be in good health, but perhaps not excellent health, then waiting until your full retirement age, which for all Americans ranges between ages 65 and 67, could be a good idea. Claiming around your FRA ensures that you receive right around 100% of your due benefit.
- Those with moderate, but inadequate, savings: If you've done a decent job of building a nest egg, but are unsure if it'll last you throughout your retirement (life expectancies have risen nine years since 1960), then waiting until around your FRA age could be a wise move. This way you'll net right around 100% of your benefit, which should hopefully be enough to supplement the income you'll receive from pensions and by drawing down your retirement account(s).
- High earning spouses: Sometimes higher-earning spouses simply can't wait until ages 68 to 70 to file for benefits. Maybe it's a health issue or something personal, but claiming at full retirement age can still have its advantages. At FRA, your payout will be 100% of what your due, which is a healthy improvement over the 70% to 75% that would have been paid had you claimed as early as possible at age 62. What's more, a lower-income spouse will be set up to potentially receive a healthy survivor benefit if the higher-income spouse pass away first, all because he or she waited until FRA before enrolling for benefits.
Claim between ages 68 and 70
- Those in excellent health: On the other hand, if you're feeling healthy, and you have a long history in your immediate family of people living into their 80s or beyond, then waiting to claim Social Security could be the smart move. The rough inflection point between claiming early and late tends to be between ages 78 and 80. In other words, even if you forgo eight years of claiming history and wait until age 70 as opposed to taking benefits at age 62, you could earn a lot more over your lifetime from Social Security if you live to say age 80 and beyond.
- People with little or no savings: One of the biggest Social Security misconceptions is to claim money as soon as possible if you have little or nothing saved for retirement. This is actually the worst thing you can do, since you're liable to be reliant on Social Security income in your golden years. If you haven't saved much, the goal should be to work as long as possible, use your working wages to cover living expenses, and allow your Social Security benefit to grow as large as possible.
- High-earning spouses: Occasionally, high-earning spouses can benefit by waiting until between ages 68 and 70 to enroll in Social Security. This way they've allowed their payout to grow beyond their FRA benefit, and it'll really pack a punch when adding to monthly household income for the couple.
- Wealthy individuals: That's right, the wealthy can benefit by waiting, too. Since the well-to-do live considerably longer, on average, than lower-income folks, and they're also not reliant on Social Security benefits, holding off on claiming benefits between ages 62 and 70 means not having to recognize extra income and pay tax on that income. In other words, waiting could be a smart tax move for the wealthy.