If You Ask Me, Delaying Social Security Is Overrated -- Here's Why

There are plenty of pressing questions people need to answer as they approach retirement. One of the more crucial ones is when to claim Social Security benefits. For millions of Americans, Social Security will be most, if not all, of their retirement income. So, the decision on when to claim shouldn't be taken lightly.

You can claim benefits as early as age 62, at your full retirement age (FRA), or delay them until you reach 70. Claiming benefits before your FRA will reduce your monthly benefit, and delaying them past it will increase it.

The idea of higher Social Security monthly benefits sounds enticing to many people, but when you look at the grand scheme, I believe it can be overrated. Here's why.

The importance of your FRA in Social Security

Your FRA is the age when you're eligible to receive your full Social Security monthly benefit. It's the baseline that determines how your benefits are calculated based on when you decide to claim. Below are FRAs based on birth years.

Image source: The Motley Fool.

How much your monthly benefit is reduced for taking it early depends on how many months away you are from your FRA. If you're within 36 months of your FRA, benefits are reduced by five-ninths of 1% each month. Each month after that reduces them by five-twelfths of 1%. This works out to a 30% reduction if your FRA is 67 and you claim at 62.

How your monthly benefits are affected by delaying them past your FRA is more straightforward: They'll be increased by two-thirds of 1% for each month until you reach 70. That works out to monthly benefits being increased by 8% annually and 24% if your FRA is 67 and you claim at 70.

You should consider the amount of missed payments by delaying

It's natural to want higher monthly Social Security payments, but your breakeven age and life expectancies can help put things into perspective. Your breakeven age is when the total amount you receive by claiming benefits at a certain time equals the total amount you would've received by delaying them until 70.

As an example, let's assume someone's monthly benefit is $2,000 at their FRA. This means delaying benefits until 70 would increase their monthly payout to $2,480.

At age 80, someone who claimed benefits at 67 would have received $312,000 total; someone who claimed at 70 would've received $297,600. At age 82.5, someone claiming at 67 would've received $372,000, and someone claiming at 70 would've also received that same amount, making 82.5 their breakeven age.

Keeping that in mind, let's look at Social Security's life expectancies at certain ages:

Data source: Social Security Administration. Life expectancy figures refer to expected age at death.

Based on these life expectancies, a man's breakeven age for claiming at 67 versus delaying until 70 is basically the same as his life expectancy at 67. Women have a bit more leeway, but in both situations, the main question you must ask yourself is if the many months of missed payments (36 in this case) are worth the increased monthly benefits.

Everybody's situation calls for a different approach

Despite my thinking that delaying Social Security payments can be overrated, I must stress that there is no "right" or "wrong" time to claim, for the most part. Everybody has different situations that require them to consider certain factors more than others.

For example, someone with health issues or a family history of health issues may want to claim benefits as soon as possible because of uncertainty. Someone who's financially well-off may delay benefits simply because they won't be relying too much on Social Security for their retirement income.

Deciding when to claim Social Security should be a thoughtful decision. Health, family health, financial situation, retirement savings, goals, and plenty of other factors should be considered. You always want to do what fits your situation and what you're comfortable with.