Whether you're already retired or plan to retire at some point in the future, the data doesn't lie: Social Security has a good chance of helping you to make ends meet.
According to data from the Social Security Administration, more than 3 out of 5 retirees lean on the program to account for at least half of their monthly income. Meanwhile, two separate polls from Gallup found that 90% of current retirees and 83% of future retirees will rely on Social Security as either a "major" or "minor" source of income. This means deciding when to take Social Security just might be the most important decision seniors make.
Your claiming age has a big impact on how much you'll receive from Social Security
Although there are a number of factors that can affect how much seniors are paid by Social Security, including your work history, earnings history, and birth year, it's your claiming age that can have the biggest impact on your monthly and lifetime payout.
As you may already be aware, Social Security allows eligible retirees to begin taking their benefit at age 62, or any point thereafter. The catch is that the program incents patience. For each year an individual holds off on taking their payout, it'll grow by approximately 8%, up until age 70.
All things being equal -- work history, earnings history, and birth year (which determines your full retirement age) -- a person claiming at age 70 could receive a monthly payout that's up to 76% higher than someone claiming as early as possible at age 62. The trade-off being that the person claiming at 62 could receive a (reduced) payout for up to eight years before the individual at age 70 receives their first payout.
Trying to figure out which claiming strategy works best for your situation isn't easy, especially given that we don't know our expiration date, and there's no concrete guide that works for everyone.
The three best ages to take your Social Security benefit
However, there is a new study from United Income that took a hard look at Social Security claiming data from the University of Michigan's Health and Retirement Study (HRS) to determine the ages where taking Social Security benefits was optimal. The results showed an almost perfect inversion of when people are taking benefits versus when they should be taking them.
According to the analysis from United Income, just 6.5% of the senior households that were included via the HRS would have made an optimal claiming choice by taking their payout at ages 62, 63, or 64. Yet, close to 4 out of 5 senior households that were analyzed had taken their payouts prior to reaching age 65. In layman's terms, these early claimants wound up leaving a lot of money on the table, at least in hindsight.
On the other end of spectrum, United Income was able to identify a handful of ages that maximized what claimants received over their lifetime. The data showed that 57% of seniors would have been better off waiting until age 70 to take their payout, with around 10% benefiting from an age 67 claim, and just shy of 10% from an age 69 claim. And yes, if you're curious, age 68 was the fourth-most optimal claiming age. In effect, more than 4 out of 5 seniors would be best off waiting until age 67 or later to begin taking their benefit. And, as a reminder, age 67 is the full retirement age for anyone born in 1960 or later.
Your claiming strategy is a bit of science and luck
While the data is pretty clear that seniors would overwhelmingly be better off waiting to take their Social Security benefit, the fact remains that this suggestion won't work for everyone. That's because none of us knows (thankfully) our expiration date in advance, which is an important piece of information if we're going to maximize our lifetime payout from the program.
In order for seniors to have the best chance at maximizing their lifetime benefit, they'll need to really think about the variables that matter most to them. This involves taking into consideration your health history, financial situation (i.e., need for immediate income), and marital status, to name a few factors.
For example, if you're in excellent health; have no chronic health conditions; and have immediate family members, such as parents, who have lived well into their 80s, if not longer, science would suggest that you have longevity on your side. That would mean a later Social Security claim should give you the best chance to maximize your monthly and long-term payout.
However, some luck is involved, too. Without knowing our expiration date, we simply won't know if we made an optimal claiming decision until well after the fact. All we can say with certainty, at least from United Income's analysis via the HRS, is that far too many seniors claim Social Security benefits early, and it's resulted in a lot of money being left on the table.