Many of today's working Americans are likely taking Social Security for granted. Every year, America's top retirement program pulls more than 21 million people out of poverty, including close to 15.4 million adults aged 65 and older. Without Social Security, the elderly poverty rate would be almost four times higher than it is today.
Furthermore, two decades' worth of annual surveys from national pollster Gallup have found that between 80% and 90% of retirees in any given year rely on their Social Security income to cover at least some portion of their expenses.
In other words, Social Security is vital to the financial well-being of our current and future retired workers. This means it's imperative for future generations of retirees to get the most they can out of America's leading retirement program. But in order to do so, retirees first need to understand how their benefit is calculated, as well as how their claiming age can dramatically affect what they'll receive each month.
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Here's how your Social Security benefit is calculated
Although there are well over a half-dozen factors that can affect what you'll get to keep of your Social Security check -- Social Security benefits can be taxed at the federal level, as well as in 12 states, depending on your income -- there are four bare-bones components the Social Security Administration (SSA) uses to determine how much you'll receive each month:
- Work history
- Earnings history
- Full retirement age
- Claiming age
The first two components are intertwined. The SSA will use your 35 highest-earning, inflation-adjusted years when calculating your retired worker benefit. This means if you earn more, you'll likely receive a larger payout during retirement. Furthermore, for every year less than 35 worked, the SSA will average a $0 into your calculation, which can meaningfully reduce your monthly benefit.
The third element on the list, full retirement age, is completely out of your control. It's the age you become eligible to receive 100% of your retired-worker benefit, and it's determined by your birth year. For anyone born in 1960 or later (that's most of today's labor force), full retirement age is 67.
The fourth and final factor, and the one that can really pump up your monthly benefit or shrink it considerably, is your claiming age. Workers who've earned the requisite 40 lifetime credits can begin receiving a Social Security check as early as age 62. However, patience is encouraged. For every year a worker waits, post-eligibility, to receive their benefit, their monthly payout can grow by up to 8%, through age 69, 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. Table by author.
What's the average Social Security benefit at age 64?
There are big dollar figures on the line depending on when you choose to take your Social Security benefit.
For instance, future generations of retirees who want their money as soon as possible (age 62) will be accepting a permanent monthly reduction of as much as 30%, compared to what they'd have been due at age 67 (their full retirement age). Based on the average retired-worker benefit of $1,843.96 in October 2023, we're talking about a greater than $550-per-month haircut in benefits.
Meanwhile, an age 70 claimant born in or after 1960 can receive up to 24% more than what they'd be due at their full retirement age, or almost $443 more per month, based on the current average retired-worker payout. This eight-year claiming age difference would result in a nearly $1,000-per-month benefit gap.
This trade-off between getting a reduced payment sooner or having to wait for a beefier monthly payout is what encourages some retirees to take a middle-ground approach. Even though age 64 was the second least popular of the nine claiming ages from 62 through 70 in 2022, it certainly fits the mold of an age that middle-ground applicants would consider.
Just how much is the average retired-worker beneficiary taking home at age 64? According to data from the SSA, the 1,034,598 retired workers receiving a benefit at this age, as of December 2022, were bringing home $1,411.50 per month, or $16,938 on an annualized run-rate basis. While this is nearly 10% higher than what the average retired worker received at age 62, it's 23.5% below the average benefit check at age 67 and 28.1% lower than the typical Social Security benefit for retired workers at age 70.
The allure of an age 64 claim is the ability to get your benefit early enough to enjoy it, while also avoiding a maximum permanent reduction of up to 30% by waiting two years.
However, an early claim also exposes beneficiaries to an assortment of possible penalties. On top of a permanently reduced monthly benefit, early filers may also be subjected to the retirement earnings test. The retirement earnings test allows the SSA to withhold some or all of a retired worker's benefit if they begin receiving their payout prior to reaching full retirement age and earn above preset income thresholds in a given year.
A large-scale study released four years ago found that this middle-ground approach rarely works out for retirees.
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Optimal Social Security claims often have one thing in common: Patience
In 2019, online financial planning company United Income released a report ("The Retirement Solution Hiding in Plain Sight") that examined the claiming decisions of 20,000 retired workers using data from the University of Michigan's Health and Retirement Study.
The primary goal of this analysis was to determine if retirees made an optimal claiming decision -- "optimal" in the sense that it resulted in the highest possible lifetime income for the worker. Note the emphasis I've added for "lifetime" income, which may not always mean the highest possible monthly income.
Researchers at United Income made a remarkable, yet perhaps expected, discovery: Actual claims and optimal claims were a near-perfect inverse of one another. Although most of the claimants studied began receiving their Social Security retired-worker benefit prior to reaching full retirement age, the overwhelming majority of these 20,000 retirees would have received more lifetime income had they been patient and waited until their full retirement age, or considerably later, to begin receiving their payout.
Interestingly enough, age 64 was the single worst age in United Income's study for optimizing benefits. Fewer than 2% of the 20,000 claims analyzed would have received their greatest lifetime benefit with an age 64 claim. But to be fair, age 62, 63, and 65, along with age 64 (not in this order), were the four claiming ages with the lowest likelihood of maximizing lifetime benefits.
On the other hand, 57% of retired workers would have made an optimal claim at age 70. All told, more than 8 out of 10 aggregate claimants would have gotten the most out of Social Security if they'd waited until age 67 or later.
Admittedly, there's no perfect blueprint for what claiming age is ideal for everyone. Without knowing your "expiration" date, it's impossible to know ahead of time if you've made the right choice. That's why factors like marital status, personal health, and financial needs play such an important role in the Social Security claims process.
While not all retired workers will have the luxury of waiting until age 70, or even their full retirement age, to begin receiving their Social Security check, back-tested data pretty clearly shows that patience is, more often than not, a pathway to an optimal payout.
