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Thinking of Claiming Social Security? Do This Simple Math First

By Christy Bieber - Dec 24, 2020 at 6:01AM

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It could save you from making the wrong choice.

Are you contemplating claiming your Social Security benefits? The decision to start your checks is one of the most important choices you'll make. Unfortunately, many retirees don't have all the information they need when they make it. 

Before you file for benefits from the Social Security Administration, there's a simple math problem to do first. 

Older couple looking at financial paperwork with calculator.

Image source: Getty Images.

This math will shed light on the best time to claim benefits

Calculating something called your break-even point is essential because you can claim Social Security as early as 62, but can also wait until you hit 70 if you want to increase your monthly benefit. 

When you wait even a month past age 62, you'll miss out on retirement income you could've received. You should eventually get that money back (and then some) because of the higher checks you earn by delaying the start of your benefits. But that works only if you live long enough. Calculating your break-even point will tell you how long you need to live in order for that to happen. 

Here's how to calculate it:

  • Decide what two ages to compare. For example, if you're deciding between claiming your checks at 62 versus 66, you would want to do a break-even analysis for these two ages. 
  • Determine what your benefit would be at each age. You can find your standard benefit from your Social Security account online and apply early filing penalties or delayed retirement credits to figure this out. If your standard benefit at a full retirement age of 66 would be $1,500, it would be just $1,125 at 62 after reducing it by 25% due to early filing penalties
  • Calculate how much income you'd miss out on by delaying. If you wait from 62 to 66, you'll forgo 48 months of benefits valued at $1,125. That's a total of $54,000. 
  • Determine how many months it'll take to break even. You'll receive $375 more per month if you wait until 66 to claim your benefits instead of starting them at 62 ($1,500 minus $1,125). It would take you 144 months, or 12 years, to break even for missing out on $54,000 in income if you chip away at that amount by $375 per month ($375 multiplied by 144).

Here, your break-even analysis shows that if you live past the age of 78, you would end up better off if you didn't start your Social Security benefits until 66. By age 78, your extra $375 per month would totally make up for the $54,000 you missed, and you would continue to get the extra for the remainder of your life. But if you pass away prior, you'll have shrunk your lifetime Social Security income. 

It's hard to know how long you'll live, but doing this basic math at least gives you an idea of how long it would take to gain from delaying your benefits. You can consider your health and family history when deciding if waiting months makes sense for you based on how long it will take to break even. 

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