According to the latest update from the Social Security Administration (SSA), over 62 million people each month were receiving a benefits check, of which almost 70% were retired workers. Of these aged beneficiaries, 62% rely on the program to provide at least half of their monthly income.

Furthermore, a Gallup survey from April found that nonretirees' expected reliance on Social Security had tied a 15-year high. Even though only 30% of survey respondents expect Social Security to be a major source of income during retirement, which would be about half the rate of current retirees, 54% still suggested they would lean on the program as a minor source of income. Combined, that's 84% of working-age Americans expected to be in some way reliant on Social Security when they retire.

A messy stack of Social Security cards.

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With these statistics in mind, it can be rightly argued that choosing when to claim Social Security benefits is the most important decision seniors will make. After all, making a poor or uneducated choice could mean leaving a lot of money on the table during your golden years.

The basics of your Social Security benefit

So, how do you choose when to take Social Security benefits? Well, first it helps to understand the variables that can impact that choice:

  1. Your work history
  2. Your earnings history
  3. Your birth year
  4. Your claiming age

Understandably, there are other variables that could impact your final take-home, but consider these four factors the most important.

The first two factors -- your work and earnings history -- are inextricably linked. When calculating your payment, the SSA will take into account your 35 highest-earning, inflation-adjusted years. In other words, you'd want to work a minimum of 35 years if you want to have any chance of maximizing your Social Security payout. For each year less of 35 worked, the SSA will average a $0 into your payout calculation.

Your birth year, which is the only aspect you can't control of the four factors listed, is what helps determine your full retirement age, or the age at which you're eligible to receive 100% of your benefit. For baby boomers and future retirees, your full retirement age is 66 to 67, or somewhere in between. Put simply, if you claim benefits prior to hitting your full retirement age, you'll accept a permanent reduction to your monthly payout. Conversely, if you wait until after your full retirement age, your payout can grow even larger.

A person filling out a Social Security benefits application form.

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Lastly, there's the age you choose to begin taking benefits. Though Social Security payouts can begin at age 62, the program incentivizes (and rewards) patience. For each year you hold off on claiming benefits, your payout grows by approximately 8%, up until age 70. Thusly, depending on your birth year, your payout could be reduced by up to 30% or increased by 32%, relative to the full payout you'd receive at your full retirement age.

Here's why it's perfectly OK to not know when you're taking Social Security benefits

Given that I write about Social Security often and consider myself relatively knowledgeable on the subject, you're probably of the opinion that I have a perfectly laid out plan as to when I'll take benefits. But, truth be told, I don't. I have absolutely no clue when I'll take my payout -- and in my view that's perfectly OK.

Though your claiming decision is likely to be very important, working Americans like myself -- by "working Americans" I'm generally referring to those folks currently in the workforce aged 60 and under -- have a number of variables to consider that could alter our claiming decision in the years and decades to come.

Allow me to offer my own situation as an example. Earlier this month I turned 38 years old. I'm single, have no children, and have an investment portfolio that I'm expecting to lean on during my retirement. If I had to take a shot-in-the-dark guess right now, I'd peg myself as being either slightly reliant on Social Security income, or not reliant at all, when I retire. Since I have no spouse or children to consider, the claiming decision I'd make is entirely up to my financial needs.

A person holding a puzzle piece with a large question mark drawn on it.

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However, there are countless variables that could change between now (age 38) and when I first hit Social Security's eligible claiming age (age 62), which for me would be year 2042. If I get married and/or start a family between now and then, it could certainly alter when I'd want to begin receiving benefits. After all, I'd want to do my best to maximize the survivor benefit for my spouse in case I was the one to pass away first. This would mean waiting until my full retirement age or later before claiming benefits.

I also have no clue what my personal health will entail come 2042. Though I'm healthy now, chronic health conditions do run in my family, and a lot can happen over the next quarter of a century. I'm making sure to keep the mindset of maximizing my lifetime benefits from the program, rather than what I'd receive on a monthly basis. This means I'm perfectly willing to consider taking my payout early if it means a better chance at collecting more over the course of my lifetime.

And, of course, I can't overlook the possibility of major changes hitting the Social Security program in less than two decades. The latest Trustees report suggests that, with the program beginning to pay out more in benefits than it's collecting in revenue this year, it could completely burn through its $2.9 trillion in asset reserves by 2034. Even with no chance of the program going bankrupt, it could mean an up to 21% across-the-board cut to benefits for existing and future retirees. Any legislation passed by Congress, or a lack of action, could influence my claiming decision.

Ignorance isn't the same as being purposefully indecisive

Now, to be clear, not having a clue about when I'm going to claim Social Security benefits doesn't mean I'm not keeping up with the ins and outs of the program. The rules do change from time to time, meaning I (and you) must remain vigilant to stay abreast on those changes.

A baby boomer in deep thought, with his right hand under his chin.

Image source: Getty Images.

For instance, the do-over clause (Form SSA-521) that allows an individual to request the withdrawal of their application for benefits within 12 months of receiving them was modified in late 2010. Prior to this point, there was no 12-month limit on when a withdrawal request could be filed. Form SSA-521 could be especially useful for folks who claimed benefits early because they'd struggled to find work, but who found work shortly after receiving benefits.

Ultimately, if you're a working American that has a retirement plan in place ensuring that Social Security is nothing more than a secondary or tertiary income source, then you likely have the luxury of waiting to see how your cards play out prior to narrowing down your Social Security claiming strategy.

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