As of October 2022, close to 65.9 million people were receiving a Social Security benefit. A majority of these recipients -- 48.39 million, to be precise -- are retired workers, whom the program was designed for in the 1930s. 

For many of these retired workers, Social Security income isn't just another check. It's a vital piece of their monthly income that's necessary to make ends meet. When national pollster Gallup surveyed retirees earlier this year, it found that 55% consider their monthly payout to be a "major" source of income, while a total of 89% of respondents relied on it to some degree to cover their expenses. 

Given how important Social Security is to current retirees, and the expected role it'll play during the golden years for future generations, getting as much out of Social Security as possible is imperative.

A smiling person holding a fanned assortment of cash bills.

Image source: Getty Images.

Four important inputs determine how your Social Security benefit is calculated

Although there are more than a half-dozen factors that can influence what retired workers take home from Social Security, four of these factors stand head-and-shoulders above the rest.

To start with, a person's work history and earnings history go a long way toward determining what their Social Security retirement benefit will be at full retirement age. The Social Security Administration (SSA) will take a worker's 35 highest-earning, inflation-adjusted years into account when calculating their monthly benefit. For each year less than 35 worked, the SSA averages in a $0, which can really drag down a worker's retirement benefit.

In addition to work history and earnings history, the third important factor is a person's birth year. Your birth year is what helps determine your full retirement age -- i.e., the age where you become eligible to receive 100% of your monthly retirement benefit. Without getting too deep into the weeds (because I'll be discussing this in greater detail in a moment), claiming benefits prior to your full retirement age will result in a permanently reduced monthly payout. Likewise, waiting until after your full retirement age can boost your monthly benefit above 100%.

The fourth and final all-important factor is claiming age. Though no one can control when they're born, they do have the option of choosing when to begin receiving their Social Security benefit. As you're about to see, that choice can have some big-dollar implications.

This table can determine your financial well-being during retirement

As I stated over the summer, the Social Security claiming-age table has the potential to determine your financial well-being in retirement.

The key takeaway between Social Security income and claiming age is that retirees are incented to wait to take their monthly benefit. Depending on their birth year, an eligible retiree could see their monthly benefit grow by as much as 8% per year, up until age 70, for every year they patiently sit on their hands. This means a very wide variance in potential monthly benefit outcomes between the first eligible claiming age (62) and the age where benefits stop climbing (70).

Birth Year Age 62 Age 63 Age 64 Age 65 Age 66 Age 67 Age 68 Age 69 Age 70
1943-1954 75% 80% 86.7% 93.3% 100% 108% 116% 124% 132%
1955 74.2% 79.2% 85.6% 92.2% 98.9% 106.7% 114.7% 122.7% 130.7%
1956 73.3% 78.3% 84.4% 91.1% 97.8% 105.3% 113.3% 121.3% 129.3%
1957 72.5% 77.5% 83.3% 90% 96.7% 104% 112% 120% 128%
1958 71.7% 76.7% 82.2% 88.9% 95.6% 102.7% 110.7% 118.7% 126.7%
1959 70.8% 75.8% 81.1% 87.8% 94.4% 101.3% 109.3% 117.3% 125.3%
1960 or later 70% 75% 80% 86.7% 93.3% 100% 108% 116% 124%

Data source: Social Security Administration. Table by author.

What you see in the table above is the visual evidence of how patience can pay off with Social Security. For example, the average retired worker received $1,676.53 in October, according to the SSA. If we were to use this as an arbitrary example of a full retirement age payout, the difference between claiming early and waiting until age 70 is staggering. For those born between 1943 and 1954, an early claim would equate to a $419.13/month permanent reduction. Meanwhile, claiming at age 70 would add $536.98/month. That's a $955.62 monthly difference, or approximately an $11,500 annual swing in Social Security income.

For those born in 1960 or later, it's much of the same. Claiming early would result in a 30% permanent reduction to your payout, which equates to $502.96/month. On the flip side, holding out until age 70 before claiming your benefit can boost your benefit by $402.37/month. That's a $905.33/month difference, or close to $10,900 per year.

Given this magnitude of difference in annual payouts, you're probably wondering why more retirees don't wait to take their benefit. The answer is because claiming age tends to be a bit of a crapshoot. While a big monthly benefit sounds great, the ultimate goal should be to maximize your lifetime benefits from the program. Sometimes taking your benefit early makes sense.

With the understanding that everyone's situation is going to be unique, people who have chronic health conditions, or want to reduce their debt load, might be incented to take their Social Security benefits early. Conversely, retirees who plan to rely on Social Security as their primary income source, or who believe they're in good/excellent health, may opt to wait and allow their payout to grow over time.

No matter your choice, this Social Security table can go a long way to helping you determine how financially sound you'll be in retirement.