When should you claim your Social Security benefits? It's not something you need to worry about while you're 10 or more years away, but eventually you have to figure out what makes sense for you.
Although people contemplate delaying their benefits for the increased payments, there's one compelling reason why claiming at 67 is the way to go.
How your benefits are affected by when you claim
When it comes to Social Security, one of the most important numbers you can know is your full retirement age (FRA), which is when you're eligible to receive your full monthly Social Security benefit. Here are FRAs based on birth years.
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Your FRA is important because it determines how your benefits are reduced or increased depending on when you claim them relative to your FRA.
You can claim benefits starting at 62, but the monthly payout will be reduced. Within 36 months, they'll be reduced by five-ninths of 1% each month. Each month after that reduces them by five-twelfths of 1%. People whose FRA is 67 will have benefits reduced by 30% if they claim at 62, 20% if they claim at 64, and 13.33% if they claim at 65.
On the flip side, delaying your benefits past your FRA will increase them by two-thirds of 1% each month. Someone whose FRA is 67 and claims benefits at 68 will increase them by 8%, and delaying until 70 will increase them by 24%.
The years of missed payments may not be worth it
Many people use the increased payments as a reason to delay until 70, but there's one huge reason that might not be the right choice: life expectancy. According to the Social Security Administration, here are the life expectancies of men and women at various ages:
| Age | Men's Life Expectancy | Women's Life Expectancy |
|---|---|---|
| 62 | 81.03 | 84.04 |
| 67 | 82.58 | 85.10 |
| 70 | 83.59 | 85.82 |
Data source: Social Security Administration.
You need to realize the importance of your break-even age, which is the age at which the total amount received from claiming at FRA equals the amount received by waiting until 70.
For example, let's take someone whose monthly benefit is $1,800 (close to the average payout for a retired worker in June 2023). Claiming at 70 would increase their monthly payout to $2,232. By 80, they would've received $280,800 in total payments by claiming at 67. They would've received only $267,840 by 80 if they claimed at 70.
At 82.5 years old, the total amount received by claiming at 67 and delaying until 70 evens out at $334,800. Using Social Security's data, a man's break-even age is essentially the same as his life expectancy at age 67. At that point, it's a matter of whether 36 months of missed payments is worth the wait.
The stats lean closer to delaying for women, but the same thought process should go into it. In retirement, 36 months is a lot of missed payments, even if they're smaller than the delayed payments.
There is no right or wrong time to claim benefits
Your break-even point is a great starting point if you're determining when you should claim Social Security benefits, but you shouldn't let it be the only decider. Other crucial factors to consider include your personal health, your family health history, other income streams you'll have, and your immediate financial needs.
If you're likely to outlive the average person or have the cushion of retirement income, holding off until 70 might maximize your total benefits. On the other hand, if these conditions don't hold for your situation, opting for benefits at 67 could be more the appropiriate move.
There is no right or wrong time to claim benefits, for the most part. The only wrong thing you can do is delay benefits if you need the money.
At the end of the day, retirement planning and decisions are very personal, and there's no cookie-cutter approach that applies to every person. You don't want to make uninformed decisions, but you do want to make decisions you're comfortable with, even if they may go against conventional wisdom or advice.
