You can claim Social Security benefits at the age of 62 -- but should you? Many people -- including experts from Stanford -- argue for delaying as long as possible because benefits go up the longer you wait. And there are indeed plenty of good reasons to delay. Social Security provides a guaranteed source of income for life, so waiting a little longer to maximize benefits can make sense.
But while waiting entitles you to earn delayed retirement credits, it also means you miss out on years of money you'd otherwise have received. You'll need a higher monthly income for many years to make up for all those missed benefits and reach your breakeven point.
To decide whether it makes sense to delay, it's helpful to know how to calculate your breakeven point and get a good idea of how long it might take for delaying benefits to pay off for you.
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How long does it take for delaying Social Security benefits to pay off?
The Social Security Administration uses a formula to calculate your standard benefit amount based on your average wages over 35 years, adjusted for inflation. You'll receive this standard benefit if you retire at full retirement age, which is 67 if you were born in 1960 or later.
If you retire before, benefits are reduced by 5/9 of 1% per month for the first 36 months prior to FRA and by an additional 5/12 of 1% for each of the months before that. If you retire after FRA, benefits are increased by 2/3 of 1% for each month you delay until age 70.
To figure out how long it takes for you to break even by delaying Social Security benefits, calculate how much money you'd receive over the years if you claimed early, then divide this amount by higher monthly benefits you'll receive if you delayed.
If you'd receive $1,050 monthly at 62, your annual income would be $12,600. If you claim at 62 instead of waiting until 67, you'd receive $63,000 over five years you wouldn't have received had you delayed. Your monthly benefit, however, is 30% lower than it would've been had you waited. If you claimed at 67 and received $1,500 per month, your annual income would be $5,400 higher. To make up for the $63,000 missed, you'd need to receive this extra income for 11.7 years ($63,000/$5,400). Your breakeven point happens at age 78.6, 11.7 years after your 67th birthday when benefits started coming.
The math differs depending on your specific benefits and how early you claim or how long you delay. The chart below provides an estimate of when you'd hit your breakeven point at different ages, assuming a $1,500 benefit at a full retirement age of 67.
The annual benefits forgone don't take cost-of-living adjustments into account. However, it provides an accurate estimate of years to break even, because your COLA is based on a percentage of your initial benefit amount. This means your cost-of-living raise (if one is given) is proportionately lower if you start with a lower benefit.
|
Age at Which You Claim Benefits |
Total Benefits Forgone by Waiting Beyond 62 |
Increase in Annual Income Due to Delaying Benefits Claim |
Years to Break Even |
|---|---|---|---|
|
62 |
$0 |
$0 |
NM |
|
63 |
$12,600 |
$900 |
14.0 |
|
64 |
$25,200 |
$1,800 |
14.0 |
|
65 |
$37,800 |
$3,000 |
12.6 |
|
66 |
$50,400 |
$4,200 |
12.0 |
|
67 |
$63,000 |
$5,400 |
11.7 |
|
68 |
$75,600 |
$6,840 |
11.1 |
|
69 |
$88,200 |
$8,280 |
10.7 |
|
70 |
$100,800 |
$9,740 |
10.3 |
Chart source: Author.
Should you delay claiming benefits?
Ultimately, a lot of factors go into whether you should wait to claim Social Security. But before you decide, determine how long it will take you to break even. If you don't think you'll live long enough to recoup money you missed by delaying your claim, taking Social Security early could be the smartest way to maximize the total benefits received during retirement.
