For a majority of Social Security's nearly 49 million retired workers, the monthly payout they receive is vital to their financial well-being. According to annual surveys conducted by national pollster Gallup over the past two decades, between 80% and 90% of retirees lean on their monthly Social Security benefit in some capacity to cover their expenses.
However, retired worker benefits aren't handed out for simply being an American citizen. These benefits are earned over time via work credits -- and what you'll receive from the program can vary greatly.
Image source: Getty Images.
Here are the nuts and bolts of how your Social Security benefit is calculated
More than a half dozen factors can affect what you'll receive on a take-home basis from Social Security. But when boiled down to its nuts and bolts, four elements loom largest when determining what you'll be paid each month.
Two of these components are inextricably linked at the hip: your work history and earnings history. The Social Security Administration (SSA) takes your 35 highest-earning, inflation-adjusted years into account when calculating your monthly payout at full retirement age -- that is, the age at which you're eligible to receive 100% of your retired worker benefit. For every year less than 35 worked, the SSA will average a $0 into your payout calculation. If you really want to maximize what you'll receive from Social Security during retirement, working at least 35 years is imperative.
The third important component is your birth year, which is something you have absolutely no control over. Your birth year is what determines your full retirement age. For persons born in 1960 or after, your full retirement age is 67.
The fourth factor that greatly influences how big a Social Security check you'll receive is your claiming age. For retired workers, payouts can begin at age 62 or any point thereafter.
The important thing to understand about claiming age is that the SSA provides an incentive for beneficiaries to be patient. As you can see from the table below, monthly benefits can grow by as much as 8% for every year you hold off on taking your payout, up until age 70. Depending on your birth year, claiming as early as possible could permanently reduce your benefits by up to 30%. Meanwhile, waiting until age 70 can increase your payout by 24% to 32% above what you would have received at full retirement age.
| 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: The Social Security Administration. Table by author.
Statistically, these are the best ages to take Social Security benefits
Of the four key elements that are used to calculate your retired worker benefit, none is more of a wild card than your claiming age. The $64,000 question is: Which age is best for retirees to begin receiving a Social Security check?
As of roughly five years ago, nearly three-fifths of all eligible beneficiaries, including workers with long-term disabilities, were claiming Social Security benefits from ages 62 through 65. This means close to 3 out of 5 beneficiaries were willingly accepting a permanent reduction in their monthly payout in order to get their hands on that payout sooner rather than later.
By comparison, fewer than 10% of beneficiaries began taking their payout from ages 67 to 70. Put another way, less than 1 in 10 retired workers is netting more than what they would have received at full retirement age.
However, based on a study from United Income, most Americans haven't made a smart decision. In 2019, United Income analyzed Social Security claims data from the University of Michigan's Health and Retirement Study. The purpose of this analysis was to extrapolate, in hindsight, whether retired workers ultimately made a smart or poor claiming decision.
According to United Income, only 6.5% of people who began taking Social Security at ages 62 or 63 made an optimal claiming choice. On the other hand, the best claiming ages would have resulted from retirees being patient. United Income found that 57% of seniors would have generated the maximum amount of lifetime income from Social Security if they'd waited until age 70. The other two top-tier claiming ages were 67 and 69, which each would have been optimal for around 10% of claimants.
Image source: Getty Images.
There's no perfect formula that guarantees you're making the best claiming choice
Statistically speaking, the data is pretty clear that being patient and claiming benefits at or after full retirement age gives retired workers their best chance to maximize their lifetime benefits from Social Security.
However -- and this is a pretty big "however" -- there is no perfect formula when it comes to determining the ideal claiming age. The best we can do is examine our personal and financial health, as well as take into account the financial needs of our loved ones, and make an educated claiming decision based on that information.
For instance, if you're healthy and don't anticipate relying on Social Security as a necessary part of your income during retirement, or if you have generated significantly more lifetime income than your spouse, waiting until after your full retirement age to begin taking benefits is probably the smart choice that'll result in the highest amount of lifetime benefits.
Conversely, if you have a chronic health condition that could adversely impact your life expectancy, are deeply in debt, or have no other sources of income, an early filing might be the most logical choice to maximize lifetime benefits.
Statistically, waiting makes sense for most retirees. But weighing the pros and cons of waiting based on your unique health profile, financial status, and marital picture will ultimately be the most important factors in determining your claiming age.
