For the past 22 years, national pollster Gallup has surveyed retirees to gauge their reliance on Social Security income to make ends meet. In each of these years, anywhere from 80% to 90% of then-current retirees noted that their Social Security benefit comprises a "major" or "minor" part of their monthly income.
Considering how important Social Security is to current retirees and the key role it's likely to play in keeping future generations of retired workers out of poverty, there's arguably nothing more important than deciding when to begin taking your Social Security benefit. And making this decision begins with understanding how your monthly benefit is calculated.
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These four factors are what determine your monthly Social Security benefit
While there are certain elements that could alter what retirees ultimately get to keep of their payout (e.g., the federal taxation of benefits and penalties for certain early filers), there are four factors used by the Social Security Administration (SSA) to calculate what you'll receive each month from the program. Assuming you've earned the 40 requisite lifetime credits to receive a retired-worker benefit, these four factors are your:
- Work history
- Earnings history
- Full retirement age
- Claiming age
The first two components, work history and earnings history, take into account how long you've worked and the amount you've earned each year (wages and salary, but not investment income). As you might imagine, more earned income will almost certainly result in a bigger Social Security check.
The caveat is that the SSA will account for your 35 highest-earning, inflation-adjusted years when calculating your Social Security benefit. Every year less than 35 worked will result in a $0 being factored into your calculation. If you have any aspirations of maximizing your payout, you'll need to work a minimum of 35 years.
The third factor, your full retirement age, is solely determined by your birth year and represents the age you become eligible to receive 100% of your retired-worker benefit. A majority of the current labor force was born in or after 1960, which equates to a full retirement age of 67.
The fourth factor, and the one capable of meaningfully altering how much you'll receive each month or during your lifetime from Social Security, is your claiming age. Retired-worker checks can be taken as early as age 62, but as you can see in the table, patience is encouraged. For every year an eligible beneficiary waits to take their benefit, their monthly payout can increase by up to 8%, through age 69.
| 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. Table by author.
Should you claim benefits at age 65, 67, or 70?
As you can see from the percentages in the table, there's a lot riding on your claiming decision. The challenge is there's no concrete formula that'll tell us which age is best to begin taking benefits. Without knowing our expiration date, there's always going to be some guesswork involved.
Every claiming age, from 62 through 70, has its advantages and drawbacks. In the years to come, ages 65, 67, and 70 are all likely to become increasingly popular claiming choices. Here's a breakdown of what each of these three claiming ages offers retirees, along with potential drawbacks.
- Age 65: An age 65 claim offers a sensible middle-ground approach for retirees. In exchange for waiting three years, once eligible to begin receiving a Social Security check, your monthly benefit would be reduced by only 6.7% to 13.3%, depending on your birth year. That's a considerably smaller permanent reduction than the 25% to 30% haircut age 62 claimants can expect. On the other hand, age 65 claimants haven't reached full retirement age, and can therefore be exposed to select penalties, including partial or full benefit withholding, per the retirement earnings test.
- Age 67: Taking your payout at age 67 is another middle-ground claiming tactic, but with an arguably larger bull's-eye. Since this is the full retirement age for most of today's labor force, waiting until age 67 will entitle future beneficiaries to 100% of their monthly benefit. The one downside to an age 67 claim is that if you live well past age 80, you'll likely miss out on a significant amount of additional lifetime income from Social Security.
- Age 70: The undeniable lure of taking your Social Security check at age 70 is that you're maximizing what you'll receive each month. Workers born in or after 1960 can expect to receive 24% more than what they would have taken home each month at age 70. The potential drawback is that you may not live long enough to see your patience pay off in the form of a higher lifetime benefit.
The all-important question is, which of these claiming ages -- 65, 67, or 70 -- is going to be best for a majority of future retirees? The answer to that question can be found in an extensive study released four years ago.
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One claiming age gives retirees the best chance to get the most out of Social Security
In 2019, Washington, D.C.- based financial planning company United Income released a study that examined the claiming decisions of approximately 20,000 retirees using the University of Michigan's Health and Retirement Study. The goal of this analysis was to extrapolate these claims and determine whether retirees made an optimal choice. For United Income, "optimal" means a claiming decision that resulted in the highest possible lifetime income, which may not necessarily correlate with the highest monthly income.
What researchers at United income found was a glaring disparity between actual claims and optimal claims. Whereas the bulk of the 20,000 claimants studied chose to take their Social Security benefit prior to reaching full retirement age (ergo, accepting a permanent monthly payout reduction), the lion's share of optimal claims occurred at or after full retirement age.
More specifically, United Income found that a jaw-dropping 57% of claimants would have optimized their lifetime income by taking benefits at age 70. Although age 67 was the second-most-optimal claiming age -- around 10% of retirees would have benefited most from an age 67 claim -- it's well behind age 70 in terms of maximizing lifetime income. Meanwhile, age 65 came in behind ages 66 through 70 in terms of optimized lifetime benefits.
Keep in mind that there are instances where earlier filings make sense. For example, a person with one or more chronic health conditions who could have their life expectancy shortened may receive more lifetime income with an earlier claim.
Nevertheless, United Income's extensive study suggests that a majority of future retirees would be better off financially by waiting until age 70 to begin receiving their Social Security check.
