What's Your Social Security Break-Even Age? It Matters a Lot.

Since Social Security is likely to provide a big chunk of your retirement income -- it provides around 30% of the income of the retirees, on average -- it's worth learning how to make the most of it. One key thing to know is your break-even age, which can help you decide when to claim your benefits.

Here's a look at the break-even age and how to calculate yours.

Image source: Getty Images.

The big picture

First, understand that each person has a "full retirement age" at which they can start collecting the full benefits to which they're entitled, based on their earnings history. For most workers these days, it's 67.

You don't have to start receiving your benefits at your full retirement age, though -- you can start as early as age 62 and as late as age 70, with your benefits getting smaller if you claim early and bigger if you delay. (It's not worth delaying past age 70, as your benefits won't get any bigger.) The table below shows how much of your full benefits you'll collect based on your full retirement age and when you start collecting:

Data source: Social Security Administration. 

Clearly, it can be powerful to delay until age 70 -- though not everyone can do so. Many people end up retiring earlier than planned, due to job losses, health setbacks, or other issues. Claiming benefits early will make good sense for some people, though -- such as those who simply need the money as soon as possible or who expect to live a shorter-than-average life.

So when should you claim your benefits? Well, it's a tricky question, and figuring out your break-even age can help.

Your break-even age, and how to calculate it

If you start collecting your benefits at age 62 (and most people do start at 62 or 63), your checks will be smaller -- but here's an important thing to remember: You'll collect many more checks than if you delayed. So receiving a check worth only 70% of your full retirement benefit isn't as bad as it may seem.

Still, if you start collecting at age 62 and live a very long life, you'll end up having short-changed yourself -- while if you start collecting at age 70 and only live to age 73, you'll likely wish you'd started sooner.

Here's where your break-even age comes in: It shows the age you'll need to reach to make having delayed receiving your Social Security benefits worthwhile. Let's run through an example.

Let's assume that, having set up a my Social Security account at the Social Security Administration (SSA) website, you learn that you can expect the following benefits depending on when you claim them:

Calculations by author.

(This table assumes you've been an above-average earner. As of last month, the average monthly retirement benefit was $1,839 -- about $22,000 for the year.)

Now, assume you're wondering what your break-even age would be if you delayed claiming your benefits until age 70, instead of claiming them at 62. To calculate the break-even age, you'll go through these steps:

• Between age 62 and 70, there are eight years -- or 96 months, in total.
• If you delay until age 70, you'll be missing out on 96 months' worth of $2,100 benefit checks. That means you miss out on receiving a total of $201,600.
• But delaying until age 70 means much bigger checks. Your $3,720 checks would be bigger than your $2,100 ones by $1,620.
• So now you need to figure out how many years of getting $1,620 more will make up for the $201,600 you missed out on.
• Divide that $201,600 by $1,620 and you'll arrive at 124.4 months. Divide that by 12 and you'll see that your breakeven age is 10.4 years beyond age 70 -- or age 80.4.
• Here's a nifty detail: The answer is actually 10.4 years no matter what your benefit amounts are, if your full retirement age is 67. That's because your benefit at age 62 is always 70% of your full benefit, and your benefit at age 70 is always 124% of it.

So if you delay claiming your benefits from age 62 to age 70, you'll need to live until just past age 80 in order to break even and make the delay worthwhile. Beyond age 80, it's all gravy.

There's no way to guarantee that you'll live beyond age 80, but it's not a terribly unusual age to reach. The average life expectancy at birth in the U.S. was recently about 76.4 years, per data from the U.S. Centers for Disease Control and Prevention. Women tend to live longer than men, though -- so the expectancy for men is 73.5 years and for women it's 79.3 years. 

What to do now

You can't know how long you'll live, but knowing your break-even age can help you decide whether you want to delay until age 70, hoping you'll live beyond age 80.4, or whether you'd like to start earlier. Remember, too, that you can always split the difference and just start collecting at your full retirement age.