One of the biggest advantages of the Social Security program is its flexibility. You can start claiming retirement benefits as early as age 62, or you can wait and receive fatter checks each month.
The amount you'll receive each month depends in part on the age at which you file for Social Security. If you wait until your full retirement age (which is between 65 and 67, depending on the year you were born), you'll receive 100% of the amount you're theoretically entitled to. If you claim earlier than that, your benefits will be cut for every month you're ahead of schedule, by up to 30% if you fill as soon as you're legally able. However, for each month you delay taking benefits past your full retirement age (up to age 70), you'll receive a bonus to make up for the time you spent forgoing benefits.
The most popular age to start claiming benefits is 62: In 2013, 42% of men and 48% of women filed at that age, according to the Center for Retirement Research. And despite the opportunity to earn a large boost in their benefits, very few people wait until age 70 to file for Social Security. In fact, only 4% of women and 2% of men hold out that long. That means the other 96% to 98% of Americans are missing out on this major Social Security perk.
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When it pays to wait
Of course, not everyone can wait until age 70 to start claiming benefits. Maybe you lost your job or had to retire early because of health issues, and you needed to claim benefits earlier than you anticipated just to get by. There are also a few other scenarios when claiming benefits early makes sense -- for example, you may have reason to believe you won't live much longer than age 70, or you may want to start receiving Social Security benefits while you're young enough to travel or otherwise enjoy that extra income.
If you wait until 70 to claim, though, you will receive significantly bigger checks for life. By waiting until your full retirement age, you'll receive your full benefit amount. If you claim early, your benefits will be cut by up to 30%. Wait until age 70, though, and you can receive up to 24% on top of your base benefit amount.
Say, for example, your full retirement age is 67 and you'd be receiving $1,400 per month ($16,800 per year) if you filed at that age. If you claim at 62, you'll see a 30% reduction in benefits, leaving you with just $980 per month ($11,760 per year). But if you wait until age 70, you'll get 124% of your base benefit -- or $1,736 per month ($20,832 per year). That may not seem like a dramatic difference, but it adds up over the years:
| Age | Lifetime Benefits When Claiming at 62 | Lifetime Benefits When Claiming at 67 | Lifetime Benefits When Claiming at 70 |
|---|---|---|---|
| 62 | $11,760 | - | - |
| 67 | $58,800 | $16,800 | - |
| 70 | $94,080 | $50,400 | $20,832 |
| 75 | $152,880 | $134,400 | $104,160 |
| 80 | $211,680 | $218,400 | $208,320 |
| 85 | $270,480 | $302,400 | $312,480 |
| 90 | $329,280 | $386,400 | $416,640 |
Also, if you continue to work until age 70, you'll be adding to your retirement fund rather than withdrawing it, which will increase your nest egg -- and therefore the annual income you can enjoy in retirement.
For instance, say you're 62 years old, have $300,000 saved for retirement, and are contributing $200 per month toward your retirement fund. If you continue to save at that rate while earning a 7% annual rate of return on your investments, you'll have roughly $541,00 saved by the time you turn 70. Add the extra Social Security benefits you'll earn by delaying benefits until they max out, and your retirement outlook will be pretty strong.
There's no one right answer to when you should claim Social Security benefits. In certain situations, claiming early is the best bet. If you can, though, it's often smart to delay benefits as long as possible. That little extra cushion each month will go a long way toward making your golden years enjoyable and stress-free.
