The Social Security program is quite complex and has many different rules. One of these complex rules has to do with when retirees can claim Social Security. Retirees have the option of claiming benefits as early as age 62 and as late as age 70, but there are caveats that make understanding the choice important.
While there is no single right answer as to when to claim Social Security, here's the No. 1 reason to claim benefits at the age of 70.
Increase your benefits
Retirees must be mindful that the benefits they are entitled to will be impacted by the age at which they claim them. As you might expect, there is a penalty for claiming Social Security benefits early, and a reward for claiming them late.
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Retirees can claim the full amount of benefits they are entitled to at their full retirement age (FRA), which is 67 for those born after 1960. This amount is referred to as the primary insurance amount (PIA).
But for each month that retirees claim benefits before their FRA, their benefits are lowered by 5/9 of 1% per month. If the number of months that retirees take benefits early exceeds 36, then retirees lose an additional 5/12 of 1% per month. Over several years this penalty can turn into a significant loss of benefits. For instance, if you claim Social Security at 62 and your FRA is 67, then your benefits will be reduced by a whopping 30%.
On the other hand, for each month you delay retirement benefits based on your own work history after your FRA, your benefits will be increased by 2/3 of 1% each month. So if your FRA is 67 and you wait until 70, then your benefits will be increased by 24%.
This can make a very big difference in your total benefits. For instance, if your PIA is $1,000 and your FRA is 67, then your benefits at age 62 are $700, and your benefits at age 70 are $1,240. That's a difference of $540 per month and $6,480 annually.
As has been well documented over many different studies, Social Security benefits have lost a ton of purchasing power over the years -- as much as 36% since 2000, according to the nonpartisan Senior Citizens League -- so every dollar counts.
When you should claim Social Security
The No. 1 reason to wait until the age of 70 to claim benefits is that you will be able to claim more, which may give you a better quality of life based on your financial situation and how much you rely on Social Security as your primary source of income.
But as I mentioned above, there is no one-size-fits-all answer as to when you should claim Social Security. If you can afford to wait you definitely should, because your benefits will go further. But if you are in your early 60s and your health is not the best and your finances are challenged then it probably makes sense to think about claiming Social Security early.
The key in all of this is to maximize your Social Security benefits so you get the most out of them and so they are as helpful as they can be for your individual situation.
