Chances are good that you'll rely on Social Security in some capacity when you retire. According to the Social Security Administration, 62% of today's retirees receive at least half their monthly income from Social Security, with 34% relying on the program for between 90% and 100% of their income. Furthermore, close to 80% of today's nonretirees, per Gallup, are expecting Social Security to be a major or minor source of their income. It's an indispensable and guaranteed payout that's kept millions of retired workers out of poverty. 

Given this reliance on Social Security for current and future generations, the decision of when to begin claiming benefits is arguably the most important choice seniors will make.

A Social Security card wedged between a few cash bills.

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A recap of how Social Security benefits are calculated

As a refresher, your benefits are determined by four factors:

  • Your work history
  • Your earnings history
  • Your birth year
  • Your claiming age

The first two work hand-in-hand with each other. When calculating your payout at full retirement age -- the age where you'll receive 100% of your benefit -- the Social Security Administration will take into account your 35 highest-earning, inflation-adjusted years. Each year fewer than 35 that you work will result in $0 being averaged into your eventual monthly payout, which is why working a minimum of 35 years is recommended if your goal is to maximize your monthly benefit.

Your full retirement age, which is determined by your birth year, dictates how long you have to wait to receive your full payout.

Finally, your claiming age provides the biggest variable of all. You see, retired workers can begin receiving benefits as early as age 62, or at any age thereafter. However, benefits grow by roughly 8% for each year an individual doesn't sign up for benefits, up until age 70. This means, all other things being equal -- i.e., work and earnings history, as well as birth year -- a retired worker claiming at 70 can earn up to 76% more per month than someone claiming at 62.

It also means, in its simplest form, that signing up for benefits at any point before reaching your full retirement age will result in a permanent reduction (i.e., less than a 100% monthly benefit) to your payout. Meanwhile, claiming benefits after your full retirement age can lead to an increase above and beyond 100%.

A person filling out a Social Security benefits application form.

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Very few people claim benefits after their full retirement age

Yet, according to data culled by the Center for Retirement Research at Boston College from 2013, very few retired workers wait to claim benefits.

The claims data from the Social Security Administration show that only 4% of women and 2% of men wait until 70 or later to truly maximize their monthly payout. Meanwhile, just 7% of men, and 6% of women claim after their full retirement age, up to 69. For the purpose of its data aggregation, the Center for Retirement Research listed 65 and 66 as full retirement age. If we simply take the average of the two, only 9.5% of retired workers are claiming Social Security benefits after their full retirement age, and thusly boosting their monthly payout. That's probably a lot less than most folks realize. 

Comparably, about 60% appear to be claiming benefits between ages 62 and 64, with close to 30% of eligible beneficiaries signing up at their full retirement age.

Why not wait?

Why do so few seniors wait until after their full retirement age to begin taking Social Security? My guess is it boils down to two factors.

A senior man shrugging his shoulders.

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First, a lack of knowledge likely plays a role. Back in 2015, MassMutual Financial Group conducted an online, 10-question, true-false survey on basic Social Security concepts. Only 28% of the 1,513 respondents passed with seven or more correct answers, and just one person aced the quiz.

Meanwhile, a 2017 survey from Fidelity found that just 26% of respondents firmly knew their retirement age, which is frighteningly low. Without a basic understanding of how Social Security works, retirees are unable to make informed decisions, probably leading many to claim early. 

Social Security's well-advertised issues may also be coercing some retired workers to claim earlier than they might have otherwise. The 2017 report from the Social Security Board of Trustees projects that the program will begin paying out more in benefits than it's generating in revenue by 2022. Just 12 years later, in 2034, its $3 trillion in asset reserves is expected to be gone, leading to a cut in benefits of up to 23% to keep Social Security solvent. Rather than waiting until age 70 and losing valuable years where benefits could be collected, folks who fear a benefits cut may be choosing to sign up earlier and lock in whatever they can prior to 2034.

The fact is, this trend may not change anytime soon. As long as Social Security's solvency remains in question (even though talks of bankruptcy are just a pervasive myth), it wouldn't be at all surprising for around nine out of 10 retired workers to claim benefits at or well before their full retirement age.

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