Social Security is our nation's most valuable social resource, yet it's also one of the most confusing. Despite pulling more than 22 million people out of poverty each month -- which is more than a third of current program recipients -- there's a lot that's often misconstrued about Social Security. Perhaps chief among these misconceptions is the program's sustainability.
In various surveys throughout the years, millennials have expressed concern and/or blatant doubt that Social Security wouldn't be there when it was time for them to retire and collect. This, thankfully, is a false narrative.
Social Security's two recurring sources of revenue -- the 12.4% payroll tax on earned income up to select levels and the taxation of benefits over certain income thresholds -- ensures that money will always be flowing into the program and that eligible beneficiaries will be receiving a monthly payout.
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Millennials would be smart to claim Social Security at age 67
Arguably, the bigger dilemma for millennials is going to be deciding when to take their retired worker benefit. Although there are a number of factors that go into determining your monthly stipend from Social Security, none has a bigger bearing on your take-home and lifetime earning potential from the program than deciding when to begin taking your benefit. That's because for each year you decide not to claim your benefit, your payout grows by approximately 8%. Thus, the claiming system is built in such a way as to encourage patience, as well as saving and investing outside of the program.
Keeping in mind the always important point that there is no perfect claiming strategy, I'd opine that, as a whole, millennials (those people born between the early 1980s and mid-1990s) would be best off waiting to take their Social Security benefit until age 67, which just happens to be their full retirement age. At this level, millennials would be guaranteed to receive 100% of their monthly payout.
Here are three great reasons I believe millennials should circle their 67th birthday on the calendar as their minimum target to take Social Security.
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1. Chances are you're going to be reliant on Social Security to make ends meet
The first reason to wait is simple: Surveys show that you have a better chance than not of relying on your Social Security benefit to make ends meet when you retire. According to an annual Gallup poll of retirees and nonretirees that was released in April 2019, 90% of retired workers currently lean on Social Security as a necessary source of monthly income, which tied an all-time high. And 57% of these workers count on the program as a "major" source of income.
Comparatively, 83% of nonretirees who were surveyed foresee Social Security income as being important to helping make ends meet during retirement, albeit only a third of nonretirees expect it to be a "major" source of income. Nevertheless, this combined 83% is just 1 percentage point below tying an all-time high. Since you're likely to lean on Social Security during retirement, it only makes sense to wait and net a higher monthly payout.
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2. There's a good possibility of increased longevity when you retire
A second good reason for millennials to wait until their full retirement age before taking benefits is because there's a strong possibility that longevity will increase by the time they retire. If we're living longer, it makes more sense to boost your monthly and lifetime payout potential by waiting.
Since the Social Security Act was signed into law in 1935 and through 2022, the full retirement age will have increased by just two years -- from age 65 to 67. However, the average life expectancy has increased at a much faster pace. Even though U.S. life expectancies have surprisingly declined ever-so-slightly for three consecutive years, they've risen substantially from 1940 when the average man and woman in this country lived for approximately 62 years and 67 years, respectively, from birth. Today, the average life expectancy (for men and women, combined) is a little under 79 years.
As pharmaceuticals evolve and access to medical care and preventative medicine improves, longevity should increase over the long run in the United States. Even the oldest millennials are still almost a quarter of a century away from even qualifying for a Social Security retired worker benefit (payouts can begin as early as age 62), leaving plenty of time for increased longevity to tempt millennials into a later claim.
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3. Statistics favor a later claim
The third and final reason millennials should wait until their full retirement age before taking Social Security is that they're statistically better off waiting.
In late June, United Income released a new study entitled, "The Retirement Solution Hiding in Plain Sight," which examined the lifelong impact of Social Security claiming decisions made by retired workers. What the study found was a nearly inverse relationship between optimal claiming age -- i.e., the age at which a claimant would have netted the most lifetime income possible from Social Security -- and when workers actually began taking their benefits.
According to the findings, around 4 out of 5 workers had their optimal claiming age at or after age 67 (with 57% at age 70). Meanwhile, just 6.5% of workers' optimal claiming age was 64 or earlier, which compares to the fact that almost 4 out of 5 retirees in the survey actually took their benefit at or before age 64. In other words, United Income's findings show that, while it's very difficult to predict our optimal claiming age, waiting will be the better decision for a majority of workers.
Although there are other variables to consider, more millennials than not would likely benefit by waiting until age 67 to take their payout.
