Social Security is, undoubtedly, our country's most important social program. Each month, more than 64 million benefit checks are doled out by the Social Security Administration, with more than a third of these recipients being singlehandedly pulled out of poverty thanks to this payout.
Given the relative importance that Social Security plays in the financial well-being of these tens of millions of people -- especially retired workers, who comprise more than 70% of all beneficiaries – there's arguably no decision that's more important for seniors than deciding when to begin taking their benefit. Though there are more than a half-dozen factors that can affect what you'll ultimately get to keep of your Social Security payout, your claiming age sits at the top of the list among importance.
So, when should a retired worker begin taking their payout? Though a majority of seniors (close to 60%) have chosen to begin taking their Social Security benefit between age 62, which is the earliest age of eligibility, and age 64, it may actually be a much smarter idea to wait until age 67 (or later) to begin receiving your payout. Here are five reasonswaiting may be the better approach for you.
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1. We're living longer
First off, longevity has increased substantially since Social Security payouts first began 80 years ago. Back in 1940, when the first retired worker received their benefit check, the average American was expected to live to the age of 63. But as of 2019, the average life expectancy in this country is now nearly 79 years. In fact, the Social Security Administration notes that Americans who make it to age 65 live, on average, another 20 years.
While we (thankfully) don't know our expiration date -- this is what makes choosing the best claiming age so difficult -- increasing longevity does suggest that waiting to claim benefits will result in higher lifetime payouts. As a reminder, for every year an eligible beneficiary holds off on taking their payout, their benefit grows by up to 8%, until age 70. Thus, even waiting five to eight years after age 62 to begin taking your payout can still result in collecting much more from Social Security over your lifetime than if you had begun taking your payout at age 62 (at a reduced monthly rate).
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2. You'll be protecting the ones you love
A second reason you're smart to consider waiting until at least age 67 to take your payout is that you'll be protecting your spouse in the event of your passing.
In 2020, the full retirement age -- i.e., the age at which the Social Security Administration deems you eligible to collect 100% of your monthly benefit, as determined by your birth year -- is 66 years and 8 months. By 2022, all persons born in 1960 or later will have a full retirement age of 67. If you're married and choose to wait until at least your full retirement age to claim your payout, your surviving spouse (assuming you pass away first) will have the option of maximizing their survivor benefit. Comparatively, if you were to begin taking your Social Security payout earlier than your full retirement age, the survivor benefit your spouse may receive couldn't be maximized.
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3. You'll probably be reliant on Social Security income during retirement
Though waiting to claim benefits at age 67 means going five eligible years without any income from the program, the data shows that you're likely to be reliant on Social Security to some degree when you retire. This means that beefing up what you'll receive in lifetime benefits from Social Security, rather than taking the quick and early buck, should be a smart move.
Just how reliant on Social Security will you be? According to an October 2019 survey from Gallup, 90% of current retirees lean on their monthly payout to some degree to make ends meet. That ties an all-time record high for this survey. Meanwhile, 83% of nonretirees expect Social Security to be a major or minor source of needed income during retirement.
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4. You're statistically more likely to make an optimal claim by waiting
Fourthly, you statistically have a better chance of making an optimal claiming decision if you wait. By "optimal claiming decision" I mean the claiming age that nets a retired worker the highest amount of lifetime benefits from Social Security.
Last year, United Income analyzed approximately 2,000 senior households, comparing the actual Social Security claiming ages of these folks to what their optimal claiming age would have been. The analysis found that while close to 80% of seniors wound up claiming their benefit at or before age 64, more than 4 out of 5 seniors would have maximized their lifetime payout from Social Security had they waited until age 67 or later. In fact, 57% of the seniors analyzed would have made an optimal claiming choice by taking their benefit at age 70. While it's not set in stone that everyone benefits by waiting, a majority of people certainly do.
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5. Congress will fix Social Security before benefit cuts are passed along
Fifth, and finally, you're smart if you avoid giving into the unfounded fear that Social Security is going bankrupt, or that it won't be there for you when you retire.
While it is true that the program is facing an estimated cash shortfall of $13.9 trillion between 2035 and 2093, it's impossible for Social Security to go bankrupt. Social Security's two recurring sources of revenue -- the 12.4% payroll tax on earned income and the taxation of benefits -- ensure that money is always flowing into the program for distribution to eligible beneficiaries.
In a worst-case scenario, retired workers could face a benefit cut of up to 23% by 2035, according to the latest Social Security Board of Trustees report. But even then this is unlikely. Facing similar asset reserve depletion worries in the past, lawmakers have eventually worked together to stave off any benefit reductions. In other words, you're smart to not give into these myths by claiming early.
