It used to be that Americans retired at age 65 because that's when they qualified for 100% of their monthly Social Security benefit. Nowadays, workers have to wait longer to reach full retirement age, but old habits die hard and retiring at age 65 is still common. If you're among those who are still targeting a retirement at age 65, then here's what you ought to know so you don't collect less in Social Security than you expect.

Why your age matters

Social Security benefits are determined by a formula that averages your highest 35 years of inflation-adjusted income to get your average indexed monthly amount (AIME). Once your AIME is determined, the amount is reduced at specific income thresholds called bend points to come up with your primary insurance amount (PIA).

A man sitting on the floor next to a piggy bank as $1 bills fall from the sky.

IMAGE SOURCE: GETTY IMAGES.

Your PIA is the amount of money that you can receive from Social Security at your full retirement age. As I mentioned, full retirement age used to be age 65, but if you were born after 1937, it's over age 65. If you were born between 1943 and 1954, it's age 66, and if you were born after 1955, it ranges between age 66 and two months to age 67, depending on the year of your birth. For instance, full retirement age for anyone born in or after 1960 is age 67.

If you retire at your full retirement age, you'll receive 100% of your PIA. However, if you claim early or late, then your benefit will be smaller or bigger than your PIA, respectively. The exact amount smaller or bigger depends on how many months you claim early or hold off claiming.

If you claim benefits 36 months or less early, then your benefit is reduced by 5/9 of 1% for each month. If you claim more than 36 months early, then your benefit is further reduced by 5/12 of 1% per month for each of those additional months. For example, if your full retirement age is 67 and you claim at age 65, your benefit would be reduced by about 13.3%.

Age 65 benefit, as a percentage of PIA:

Birth Year Full Retirement Age Age 65
1943-54 66 93 1/3
1955 66, 2 mo. 92 2/9
1956 66, 4 mo. 91 1/9
1957 66, 6 mo. 90
1958 66, 8 mo. 88 8/9
1959 66, 10 mo. 87 7/9
1960 and later 67 86 2/3

Data source: Social Security Administration.

Alternatively, if you delay claiming Social Security, then your benefit increases because of delayed retirement credits. Those credits increase your payment by 2/3 of 1% for every month you hold off, up to age 70. If you were born after 1943, then the credits would bump up your Social Security check by 8% for every year you wait. So, if your full retirement age is 67, you'll get 124% of your PIA if you wait until age 70 to start collecting Social Security.

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 at age 65

We've already established that because Social Security reduces benefits when you claim early, and full retirement age for anyone born after 1943 is at least age 66, you'll get a reduced benefit check if you start collecting age 65.

You should also know that Social Security's rules effectively cap the amount you can get in Social Security benefits, regardless of your income. 

Social Security pays benefits to current recipients with payroll taxes that it collects on current workers, but those payroll taxes only apply up to a maximum amount of taxable earnings every year. In 2018, the taxable earnings limit is $128,400, and since earnings above that amount aren't taxed, you won't get credit for them when Social Security calculates your full retirement age payout using your work history.

In 2018, if you're above the maximum taxable limit and you claim benefits at age 65, then the most you can receive in Social Security is $2,589 per month.

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.

A big decision

If you wait until age 70 to begin receiving Social Security, you'll get significantly more money per month than if you claim at age 65, but waiting to claim isn't the right move for everyone. For instance, a decision to wait until 70 won't break even with claiming in your mid-60s in terms of total lifetime benefits until you're in your early 80s. The average life expectancy of someone turning 65 years old is in the mid-80s, but there's no guarantee of living long that long.

Health is only one thing to consider when deciding when to retire, though. You also need to consider your retirement goals, sources of retirement income, expenses, and plans for your spouse after you're gone. Ultimately, there's no ideal age to retire. Instead, retiring at 65 or any other age will depend on your personal situation. 

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