The question of when you should claim Social Security benefits becomes more pressing the closer you get to retirement. After all, Social Security income accounts for a large part of many retirees' retirement income, so when you decide to claim can have real effects.
Although people commonly consider delaying benefits until they reach age 70, here's why that might not always be the best option.
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When you claim benefits matter
Your full retirement age (FRA) is when you're eligible to receive your full monthly Social Security payout. FRAs vary by birth year as follows:
| Birth Year | Full Retirement Age |
|---|---|
| 1943 to 1954 | 66 |
| 1955 | 66 and two months |
| 1956 | 66 and four months |
| 1957 | 66 and six months |
| 1958 | 66 and eight months |
| 1959 | 66 and 10 months |
| 1960 or after | 67 |
Data source: Social Security Administration
You have three options when it comes to claiming Social Security. You can claim as early as age 62, but doing so will reduce benefits five-ninths of 1% for each month within 36 months of your FRA, and five-twelfths of 1% for each month after month 36. In this case, if your FRA is 67 and you claim benefits at 62, they'll be reduced by 30%.
You can also delay your benefits, increasing them monthly until you reach age 70. For those born in 1943 or later, each monthly increase is 2/3 of 1%, or 8% per year. If you were born after 1960 and delayed benefits until you turned 70, the monthly payout would increase by 24%.
Always consider your break-even age
Many people consider delaying benefits until 70 because of the increased monthly payments, but it may not always be worth it. An important number to consider when deciding if it's right for you is your break-even age, which is the age when the total amount received from claiming at FRA (or early) equals the total amount received by waiting until 70.
Let's imagine someone's FRA is 67, and their monthly payout is $2,000. This means their monthly benefits would increase to $2,480 ($2,000 * 1.24) if they delayed them until 70. Here is the amount you would have received at different ages:
| Claiming Age | Monthly Benefit | Total Received by 80 | Total Received by 82.5 | Total Received by 85 |
|---|---|---|---|---|
| 67 | $2,000 | $312,000 | $372,000 | $432,000 |
| 70 | $2,480 | $297,600 | $372,000 | $446,400 |
Calculations by author.
In this example, someone's break-even age would be 82.5, so any benefits received after that means the total amount received is greater for delaying benefits versus taking them at FRA.
It's not a complex concept, but it can be a sensitive topic, because you should consider your likely life expectancy. Of course, there's no way to predict it, but you can use life expectancy data (which Social Security provides), as well as your own and your family's health history, to make a more educated guess.
According to the Social Security Administration, at age 67, men and women have a life expectancy of 82.58 and 85.10, respectively. At age 70, they have life expectancies of 83.59 and 85.82, respectively.
Continuing our example, a man's life expectancy at 67 is essentially the same as his break-even age. The money values would roughly even out, but it's worth considering the many months of missed payments and the chance to use that money to enjoy retirement instead of waiting.
In a woman's case, the choice gets a bit harder because there are years of payments after the break-even age if we're going off life expectancy. Still, the months of missed payments should be considered.
One piece of the decision-making puzzle
Determining your break-even age can be useful when deciding when to claim Social Security benefits, but it's not the sole factor to consider. Think about other factors such as personal and family health history, financial needs, and additional sources of retirement income you may have.
If signs point to you living longer than average or you're not pressed for the benefits because of a 401(k) or additional income, waiting until 70 to claim could result in noticeably more total benefits over your lifetime. Conversely, if this doesn't apply to you, claiming benefits early or at FRA may make more sense.
Deciding when you claim Social Security shouldn't be taken lightly, but it doesn't have to be a hard decision, either. Consider the role Social Security will play in your retirement income and let that guide you.
