Unfortunately, Social Security isn't the most straightforward program. There are constant changes and complexities that can sometimes leave retirees with more questions than answers. Considering the vital role Social Security plays in many people's retirement, that shouldn't be the case.
While this complexity isn't likely to change, the one thing retirees can do is cut out the noise and focus on the handful of details that matter the most. If there's one number to focus on regarding Social Security -- particularly in helping you decide when to claim benefits -- it should be your break-even age.
Your break-even age is when the total amount received from claiming Social Security at your full retirement age (FRA) or earlier equals the total amount received by delaying benefits.
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When to claim benefits is an important decision
When you claim Social Security benefits is important because it directly affects your monthly payout. Your FRA is the age you're eligible to receive your full monthly benefit and is based on your birth year as follows:
Image source: The Motley Fool.
You have three options when choosing when to claim Social Security. You can claim as early as age 62, at your FRA, or delay benefits up until age 70.
Claiming benefits early will reduce them monthly based on how many months away from your FRA you are. People whose FRA is 67 and claim benefits at 62 will have them reduced by 30%.
Delaying benefits increases them by two-thirds of 1% each month (8% annually), so someone with an FRA of 67 could increase their monthly payout by 24% by delaying benefits until 70.
Finding your break-even age
Let's imagine someone's FRA is 67, and their full monthly benefit payout is $1,800 -- just below the average monthly benefit of $1,837.29 for retirement workers as of June 2023. By delaying their benefits until 70, they'll increase to $2,232 monthly ($1,800 * 1.24).
Here is the total amount they'll receive by certain ages:
| Monthly Benefit | Total Received by 82 | Total Received by 82.5 | Total Received by 83 |
|---|---|---|---|
| $1,800 | $324,000 | $334,800 | $345,600 |
| $2,232 | $321,408 | $334,800 | $348,192 |
Calculations by author.
In this case, that person's break-even age would be 82.5. This means any benefits received after that age makes the total amount received by delaying greater than taking them at their FRA.
Consider more than just your break-even age
Your break-even age should be an important factor in determining when you claim Social Security, but it shouldn't be the only thing you consider. You also need to consider health (personal and family history), financial needs, other sources of retirement income, and even projected life expectancy.
Life expectancy, in particular, can be uncomfortable to dig into, but it's needed. It could be a situation where your break-even age is comparable to your life expectancy, and you decide waiting isn't worth the additional monthly benefits. The opposite applies, too.
Here are the life expectancies of men and women starting at particular ages:
| At Age | Men's Life Expectancy Is | Women's Life Expectancy Is |
|---|---|---|
| 67 | 82.58 | 85.10 |
| 70 | 83.59 | 85.82 |
Data source: Social Security Administration.
No two people's situation is the same, so there's no cookie-cutter approach to deciding when to claim benefits. More than anything, it's about having as much knowledge as possible to ensure you're making as informed of a decision as possible. The implications of when someone claims Social Security are huge enough not to gloss over the choice.
