One of the first things you'll read as you look into Social Security is how big of a difference the age at which you decide to claim your retirement benefits can make. With the ability to claim as early as 62 or as late as 70, when you start getting payments can have a massive impact on how much financial support you get from Social Security during your golden years.

Many retirees and near-retirees don't know that waiting even a single month to claim benefits makes a difference in what you'll get. In some ways, it's easier to understand the trade-offs involved when you look at the differences that one month makes. Seeing the dollars and cents involved won't necessarily make your decision automatic, but it will give you a much better picture of what to consider in making a smart choice.

Social Security card embedded in a spread-out pile of coins.

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What a month is worth

To understand the impact of waiting an extra month to get your Social Security benefits, you first have to know how the Social Security Administration generally calculates how much you'll get. After taking your annual earnings for your top 35 earning years after accounting for inflation, the SSA calculates an average indexed monthly earnings amount for your career. It then applies a formula to come up with your primary insurance amount, or PIA.

The PIA defines how much you'll get in retirement benefits if you take Social Security at your full retirement age. However, the SSA applies reductions if you take benefits early, and it adds credits if you delay retirement beyond your full retirement age.

Because of the way the formula works, there are actually three different impacts that a one-month delay can have on your benefits, depending on how old you are when you're thinking about the decision:

  • If you are more than 36 months younger than your full retirement age, then each month you delay increases your benefit by 5/12ths of a percent of your PIA.
  • If you are less than 36 months younger than full retirement age, then each extra month gives you a boost of 5/9ths of a percent of your PIA.
  • Delayed retirement credits give you 2/3rds of a percent of your PIA extra per month that you wait beyond full retirement age.

The fact that there are three different answers makes things a little more complicated. But as you'll see in the examples below, the differences aren't necessarily as large as you'd think.

Three examples

To keep things as simple as possible, let's look at three examples, one covering each of the situations listed above. In each case, the person involved has a PIA of $1,400 and a full retirement age of 66.

In the first example, the Social Security recipient is looking at the difference between claiming at age 62 and 11 months versus claiming at age 63. The 5/12ths-percent addition that applies results in a monthly benefit of $1,120 rather than $1,114. Here, the trade-off is that in exchange for giving up one $1,114 payment, you'll receive an extra $6 per month for as long as you live. Doing the math, it'll take between 15 and 16 years to make up that difference.

A second example shows how being slightly older has a different impact. In measuring the difference between claiming at 65 and 11 months versus 66, the 5/9ths-percent addition results in getting $1,400 versus $1,392 per month. Here, when you compare the $8 per month extra you get by waiting against the single $1,392 payment you give up, the difference amounts to between 14 and 15 years.

Finally, consider what happens if you claim at 69 and 11 months versus 70. Delayed retirement credits apply in both cases, and you'll get $1,839 or $1,848 per month depending on whether you wait the extra month. It'll take between 12 and 13 years to earn back the $1,839 payment you give up with the additional $9 in monthly benefits you'll get.

Pointing to the same age

You can see that the older you are, the shorter the amount of time it takes for the higher monthly payment to catch up to claiming early. However, when you look at the age when the financial impacts of the various decisions converge, it's relatively similar. In general, you'll find that the catch-up date typically comes within a couple years on either side of your 80th birthday.

Mathematically, what this means is that if you think that you'll live well into your 80s or beyond -- as life expectancy tables for those in the 60s would suggest -- then you're more likely to end up ahead by delaying by a month. If your health history makes you less optimistic, then taking the early payment is the smarter choice.

The smart Social Security decision

With Social Security, numbers are only part of the decision-making process. A lot comes down to personal circumstances and your own comfort level with the trade-offs involved in each choice you make. Regardless of what the math says, you have to be comfortable with your decision -- and knowing the consequences of each choice will make it easier for you to pick the smart option for your situation.

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