If you were born in 1954, then 2020 marks a big year on the Social Security front. That's because it's the year you turn 66, which represents full retirement age (FRA) for Social Security purposes. Once you reach FRA, you're eligible to collect your full monthly benefit based on your earnings history.

But should you actually claim benefits at age 66? Or does it pay to wait longer?

File now versus waiting

The Social Security Administration (SSA) actually lets you claim your benefits as early as age 62, but for each month you file before FRA, your monthly benefit is reduced by a certain percentage. That's why it's often advisable to wait until at least FRA to sign up -- so you don't reduce what could be a very important income stream for life.

Loose pile of Social Security cards


Furthermore, the SSA gives you the option to delay benefits past FRA and boost them by 8% a year in the process. Though this incentive runs out at age 70, if you're looking at an FRA of 66, you have an opportunity to increase your monthly benefit by 32% -- for life.

So what's the right move for you? It depends on a number of factors.

First, you'll want to assess your nest egg. If you don't have a lot of money socked away in an IRA or 401(k) plan, then delaying benefits could be a smart move. Remember, Social Security will only replace about 40% of your former wages if you're an average earner, and most retirees need more like 70% to 80% of their previous income to keep up with their senior living expenses. If you're lacking in retirement savings, boosting your benefits is a good way to help compensate.

Your health should also play into that decision. If it's great and there's a good chance you'll live a longer life than the average senior, then delaying benefits could result in a higher lifetime payout from Social Security. But if your health is poor, then you may be better off filing right away.

For example, imagine you're entitled to a monthly benefit of $1,600 at an FRA of 66. Waiting until age 70 to file will boost that benefit to $2,112, but you'll miss out on four years of payments. If you live until 82 1/2, you'll break even under both filing scenarios, coming away with a lifetime total of $316,800, regardless of whether you claim benefits at 66 versus 70. But once you live past 82 1/2, you start to come out ahead financially by waiting. And if you pass away even slightly before 82 1/2, you lose out on money by waiting. Therefore, see how your health stacks up before making your choice.

Finally, assess your immediate need for income. If health issues are forcing you to leave your job or you get laid off and know you'll struggle to find work elsewhere, then you frankly may have no choice but to claim benefits at 66 rather than wait.

A tough decision

Landing on the right Social Security filing age is easier said than done. Though claiming benefits at 66 often makes sense, especially if that constitutes full retirement age for you, there's clearly an upside to waiting. Weigh that against the downside, and with any luck, you'll come to the right decision.