Social Security is a valuable source of retirement income for tens of millions of Americans, but deciding when to claim benefits can be tough. Social Security only pays 100% of the benefit you're owed if you wait to claim until your full retirement age, and if you claim early, Social Security will penalize you with smaller checks.
The best way to get the most Social Security is to delay taking it. That's because the system rewards patient Americans with annual increases for every year they hold off taking benefits, up to age 70.
How much is the maximum you can get in Social Security if you wait? The amount may surprise you.
A great investment
Social Security calculates your monthly full retirement-age benefit using a complex formula that averages your highest 35 years of inflation-adjusted income, and then reduces that average at specific income thresholds called bend points.
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As I already mentioned, you only get 100% of your benefit if you begin receiving Social Security at full retirement age (FRA). If you were born between 1943 and 1954, your FRA is 66, and if you were born after 1955, it ranges between age 66 and 2 months to age 67. If you retire at that age, you'll get 100% of the amount you're owed in Social Security benefits, but if you claim later than that, you could receive up to 132% of your benefit because of delayed retirement credits.
The exact amount in extra benefits you get depends on how many months you delay. Specifically, Social Security increases your benefit by two-thirds of 1% for every month you wait beyond FRA, up until age 70. If you were born after 1943, then these monthly increases work out to an 8% annual increase in your Social Security payment.
A guaranteed 8% annual return is undeniably attractive, especially when you consider that the compound annual return of the S&P 500 index, including dividends, has been just 5.4% since 2000.
The following table shows how much more you'll collect in benefits in percentage terms if you wait until age 70 to claim, depending on your birth year. For example, if you were born between 1943 and 1954, you would qualify for four years of delayed retirement credits at 8% per year. Therefore, if your monthly full retirement benefit was $1,000, waiting would result in a monthly check of $1,320. If you were born in 1960 or later, you can get three years of credits at age 70, and they would increase your monthly benefit from $1,000 to $1,240.
| Birth Year | Full Retirement Age | Percentage Paid If Claiming at 66 | Percentage Paid If Claiming at 67 | Percentage Paid If Claiming at 70 |
|---|---|---|---|---|
| 1943-54 | 66 | 100% | 108% | 132% |
| 1955 | 66, 2 months | 98 8/9% | 106 2/3% | 130 2/3% |
| 1956 | 66, 4 months | 97 7/9% | 105 1/3% | 129 1/3% |
| 1957 | 66, 6 months | 96 2/3% | 104% | 128% |
| 1958 | 66, 8 months | 95 5/9% | 102 2/3% | 126 2/3% |
| 1959 | 66, 10 months | 94 4/9% | 101 1/3% | 125 1/3% |
| 1960 and later | 67 | 93 1/3% | 100% | 124% |
Data source: Social Security Administration.
The maximum Social Security you can collect at 70
Social Security is a pay-as-you-go system, so benefits that are paid to current Social Security recipients are funded by payroll taxes on current workers. Payroll taxes only apply up to a specific amount of income annually, though. In 2018, the maximum taxable earnings limit is $128,400.
Social Security doesn't give you credit for any earnings above the taxable limit when it determines your retirement benefit amount, so there's a maximum amount you can get in Social Security benefits, regardless of your income.
In 2018, the maximum you can get in benefits if you're at the maximum taxable earnings limit and you wait to claim until age 70 is $3,698.
| Maximum Social Security if You Retire in 2018 | ||
|---|---|---|
| Age | Per Month | Per Year |
| 62 | $2,158 | $25,896 |
| 65 | $2,589 | $31,068 |
| 70 | $3,698 | $44,376 |
DATA SOURCE: SOCIAL SECURITY. CHART BY AUTHOR.
Wait to claim?
Everyone's situation is different and depending on your health, retirement goals, sources of retirement income, and expenses, retiring early might be a better decision for you. Nevertheless, you may have noticed in the above table that a person who is at the maximum taxable income limit could collect 71% more in benefits by waiting until age 70 to claim rather than claiming at age 62. That's a significant difference that needs to be taken into consideration before making your final decision on when to start receiving Social Security.
