Why Claiming Social Security at 65 Is a Smart Bet

When should you sign up for Social Security? It's a good question. Many seniors grapple with that decision, and understandably so, since the age at which you claim benefits will dictate how much money you'll receive each month during retirement.

Your monthly benefit is actually calculated based on your average monthly wages, indexed for inflation, over the course of your 35 highest-paid years in the workforce, and you'll get that precise sum if you file for Social Security at your exact full retirement age (FRA). That age isn't the same for everyone -- it's based on the year you were born:

DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.

Meanwhile, you can sign up for Social Security as early as age 62 or delay your benefits until age 70. (Technically, you can hold off past that point, but there's nothing to gain financially from that.) Filing before FRA reduces your monthly benefit automatically, while waiting past FRA to file boosts it.

Many seniors rush to claim Social Security as soon as they're able -- so much so that 62 is actually the most common age to sign up for benefits. A much smaller percentage of seniors wait until 70 to collect benefits, and in doing so, they lock in a higher monthly sum for life.

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But there's a downside to both of these choices. When you file for benefits at 62, you impose the greatest income hit possible on yourself. A monthly benefit of $1,500 at an FRA of 67 will become just $1,050 if you claim it at 62. Then again, you'll get that money earlier in life, giving you the flexibility to spend it as you need or enjoy it as you'd like.

On the flip side, waiting until 70 to sign up for Social Security turns that same monthly benefit into $1,860, only then, you're waiting a really long time to start collecting it. It's for this reason that 65 may be a great age to claim your benefits; it's a nice compromise.

Should you claim Social Security at 65?

Many people assume that they're eligible for their full monthly Social Security benefit at 65 because that's the age at which Medicare kicks in. But unfortunately (or fortunately, depending on how you choose to look at it), you're entitled to those health benefits well before you're eligible to collect your Social Security benefit in full.

Still, 65 may be a good age for you to sign up for Social Security, and it really has nothing to do with Medicare. By claiming benefits at 65, you're not filing at the earliest possible age of 62, but you're also not waiting too long to get that money. It's a smart bet if you have longevity concerns.

Social Security is technically designed to pay you the same lifetime (not monthly) benefit regardless of when you initially file. The logic here is that if you claim benefits early and reduce them, that will be offset by the greater number of individual payments you receive in your lifetime. And if you delay benefits, you'll get more money each month, but fewer individual payments.

All told, things should come out about even if you live an average lifespan, but if you're worried you'll pass away sooner than the typical senior, then it generally pays to claim benefits on the early side. If you settle on 65 as your filing age, you'll be limiting your longevity risk, all the while ensuring that you don't wind up with the maximum reduction in benefits you might face.

Of course, there's one small advantage to claiming Social Security in conjunction with Medicare. If you do, your Part B premiums will be paid from your Social Security benefits directly. That not only saves you time, but gives you some amount of protection against rising premium costs, thanks to what's known as the hold harmless provision. But the main reason it pays to consider 65 as your Social Security filing age is that it's a middle-ground solution.

Ultimately, there's no right or wrong answer as to when you should sign up, and to an extent, any age you choose will ultimately be a gamble. But 65 is a good way to hedge your bets.