In June, close to 67 million people collected a traditional Social Security check, 49.4 million of which were retired workers. For a majority of these retirees, their monthly benefit represents a critical source of income needed to cover their expenses.
Given how important Social Security income is to current retirees, as well as how many non-retirees expect it to represent either a major or minor income source when they hang up their work coats for good, it pays to get the most out of the program. This means it's important to have a good understanding of how your monthly benefit is calculated, and how your claiming decision can drastically impact what you'll receive each month.
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The ins-and-outs of how your Social Security benefit is determined
There are a number of factors that can affect how much of your Social Security benefit you'll get to keep. Early claimants may be subject to the retirement earnings test, depending on their annual income. Likewise, Social Security benefits may be taxable at the federal and state level, depending on your income and where you call home.
But when it comes to the essentials of calculating your monthly Social Security check, four factors come into play: work history, earnings history, full retirement age, and claiming age.
Your work history and earnings history are somewhat woven together. The Social Security Administration will account for your 35 highest-earning, inflation-adjusted years when calculating your monthly payout. Every year less of 35 worked results in a $0 being averaged into the calculation. This means not only earning as much as you can in the years you do work, but also working for at least 35 years to have any chance to maximize your payout.
The year you're born also plays a big role in determining what you'll receive each month from Social Security. Your birth year is what determines your full retirement age, which is the age you become eligible to receive 100% of your retired-worker benefit. Having a good grasp of the retirement age chart allows you to know what age you'll need to wait to before receiving your full monthly payout. For workers born in 1960 or later, the full retirement age is 67.
The fourth factor, and the one that can really cause your Social Security check to fluctuate in size, is your claiming age. Eligible beneficiaries can begin taking their payout at age 62, or any point thereafter. However, your benefit can grow by as much as 8% annually for every year it's not claimed, through age 69.
As you can see in the claims table below, an early filing can permanently reduce what you'll receive by up to 30%, whereas waiting until age 70 can add anywhere from 24% to 32% to what you'd have received at your 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: Social Security Administration.
Here's how much an early claim is costing the average retired worker
Although Social Security is designed to incent patience from future beneficiaries, the vast majority of recipients choose to begin taking their payout prior to reaching full retirement age.
According to Social Security's 2022 Annual Statistical Supplement, 65% (30.74 million) of the program's 47.29 million retired workers, as of 2021, chose to take their payout early and accept a permanent reduction to their benefit. Claiming early has been a consistent theme for more than four decades, with the percentage of early filers ranging from a low of 62.2% in 1980 to a peak of 73.9% in 2010.
Just how much does claiming your Social Security benefit early cost? The Annual Statistical Supplement has data on that, too!
In 2021, the average monthly benefit for all 47.29 million retired workers was $1,658.03, which works out to about $19,900 for the year. But the difference between those who claim early and those who waited was night and day.
The 30.74 million early filers averaged just $1,472.16 per month in 2021, or 11.2% below the average payout for all retired workers. Meanwhile, the 16.56 million beneficiaries (this figure is rounded, which is why it doesn't add perfectly to 47.29 million) who began taking their Social Security check at or after their full retirement age brought home an average of $2,003.10 each month in 2021, or 20.8% higher than the average.
All told, those who waited until their full retirement age or later to receive their benefit were paid $530.94 more per month than early claimants in 2021. That's a difference of roughly $6,371 for the full year.
Image source: Getty Images.
Based on statistics, these are the best and worst ages to claim your Social Security benefit
To be fair, there are absolutely situations where an early claim makes sense given an individual's health, marital status, or financial situation.
For instance, if you have a chronic health condition, an early filing may be a smart move. Although you'll receive a lower monthly payout than if you had waited, you'll begin collecting a check sooner. Ultimately, it doesn't matter how much you're paid each month. The goal is to maximize what you'll be paid from the program during your lifetime.
But based solely on statistics, there are well-defined "best" and "worst" ages when it comes to claiming a Social Security retired-worker benefit.
Four years ago, online wealth management and financial planning company United Income released a report that analyzed the Social Security claiming decision of some 20,000 retired workers using data from the University of Michigan's Health and Retirement Study. United Income examined these claims over long periods to determine if the claimant made an "optimal" choice -- i.e., chose to take benefits at the age that maximized their lifetime payout from Social Security.
What United Income found was that very, very few retired workers made optimal claims. There were, however, certain ages that led to optimal lifetime benefits. The report notes that age 70 would have been the correct choice for 57% of the approximately 20,000 claims studied. Ages 67 and 69 were also each optimal choices for around 10% of claimants.
On the other hand, the two earliest ages to begin taking a retired-worker benefit proved to be a poor choice for most recipients. Just 6.5% of all claimants examined made the right choice by taking their payout at age 62 or 63.
Once again, I want to emphasize that there isn't a one-size-fits-all blueprint to decide when to take your Social Security check. Everyone's situation is going to be unique. But the data strongly suggests that waiting is going to be beneficial for most retirees.
