For most retirees, Social Security income plays a very important role in their financial foundation. Even though the average retired worker brought home a modest benefit check of $1,837.29 in June (about $22,000 when annualized), this payout helps between 80% and 90% of retired workers make ends meet, based on more than 20 years' worth of surveys from national pollster Gallup.
In order to keep senior poverty rates low, eligible retired workers need to get the most out of Social Security that they possibly can. That means understanding how monthly retirement benefits are calculated and making an informed claiming decision.
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These four factors are what determine your monthly Social Security check
In aggregate, there are more than a half-dozen inputs that can affect how much of your Social Security benefit you get to keep. For instance, you might not be aware that Social Security benefits are taxable at the federal level, as well as in 12 states, depending on your income. What you receive from America's top retirement program may not be what you ultimately get to keep.
But when boiled down to the most vital components, there are four factors that go into determining how much you'll receive each month from Social Security. They are your:
- Work history
- Earnings history
- Full retirement age
- Claiming age
The first two elements -- work and earnings history -- are inextricably linked. The Social Security Administration (SSA) takes into account your 35 highest-earning, inflation-adjusted years when calculating your Social Security retired-worker benefit. For every year less than 35 worked, the SSA will average a $0 in its place. Thus, it's not only important to earn as much as you can in the years you are in the workforce, but to also work for 35 years if you want any shot at maximizing what you'll be paid from Social Security each month.
The third factor of importance is your full retirement age. This is the age you become eligible to receive 100% of your retired-worker payout, and it's determined entirely by your birth year. For instance, anyone born in 1960 or later will have to wait until age 67 if they want to receive their full retired-worker benefit.
The fourth and final factor is your claiming age. Deciding when to claim benefits can have a sizable effect on what you'll receive each month. Taking your payout prior to reaching full retirement age results in a permanent reduction. Meanwhile, waiting until after your full retirement age to begin receiving a Social Security check can result in an even higher payout, as shown in the table below.
| 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.
Should you claim benefits at age 62, 67, or 70?
Although Social Security benefits can begin at age 62, patience is encouraged. For every year an eligible worker holds off on taking their benefit, their monthly payout can grow by up to 8%, through age 69.
Nevertheless, there is no one-size-fits-all blueprint for when to take Social Security benefits. For many future retirees, ages 62, 67 (the full retirement age for most future retirees), and 70 are likely to be popular claiming choices -- and as expected, they each come with their own set of pros and cons.
- Age 62: The biggest advantage of claiming early is getting Social Security income in your hands as soon as possible. On the other hand, it means accepting a permanent reduction to your monthly benefit of as much as 30%. An age 62 claim also has the potential to expose beneficiaries who continue to work to the retirement earnings test, which can lead to some or all benefits being withheld by the SSA.
- Age 67: Claiming benefits at age 67 is the middle-ground choice that allows seniors born in 1960 or later to collect their full payout. However, it'll require five years of patience from retirees, and could result in some retired workers leaving money on the table if they live well into their 80s.
- Age 70: The clear advantage of taking benefits at age 70 is the ability to increase your Social Security check by 24% to 32% above and beyond what you'd have received at full retirement age. Conversely, it means giving up eight years of potential collection from Social Security. There's also the risk of passing on prior to reaching your 80s, which would almost certainly result in lower lifetime income collection, relative to an early filing.
The big question is: At which age should you begin taking your Social Security benefit? The answer, at least based on statistics, is pretty clear.
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Statistically speaking, there is a best age to claim Social Security benefits
In 2019, online investment management and financial planning company United Income released a study that analyzed the retired-worker claiming decisions of approximately 20,000 respondents using the University of Michigan's Health and Retirement Study.
The purpose of this analysis was to determine if these roughly 20,000 retirees had made an optimal claiming decision. For United Income, an "optimal" decision was one that resulted in the highest possible lifetime benefits for a claimant. Note, highest lifetime benefit may not be synonymous with highest possible monthly benefit.
What United Income's study showed was that claiming age and optimal claiming decisions were almost a perfect inverse of each other. In other words, there were very few optimal claims, with seniors regularly leaving large sums of Social Security income on the proverbial table.
For instance, only an aggregate 8% of the roughly 20,000 claims would have been optimal when taken at ages 62, 63, or 64. Though it can be tempting to get your hands on an extra source of income by age 62, United Income's study shows that very few early filers made a smart choice.
On the other hand, 57% of retirees would have generated the highest possible lifetime income from Social Security had they waited until age 70 to claim their benefit, according to United Income. Age 67 would have been optimal for around 10% of beneficiaries, so it was the second-best claiming age. In fact, the four best claiming ages, in order of optimal lifetime income, were 70, 67, 69, and 68. Waiting is the clear-cut smart move, based on this data.
But, as noted, there is no perfect blueprint when it comes to claiming Social Security benefits. Your decision will likely take your health, marital status, and financial situation, among other factors, into account. While there are viable reasons to take benefits early, just know that, statistically, you have a better chance of collecting more lifetime income from Social Security with a later claim.
