In October, the nearly 50 million retired workers who received a Social Security check brought home an average payout of $1,843.96. Though this represents a relatively modest monthly benefit, it's nevertheless responsible for pulling more than 15 million adults aged 65 and over out of poverty each year.
Given how reliant current retired workers are on their monthly Social Security benefit to cover their expenses, it makes sense for future generations to optimize what they'll receive from America's top retirement program. But in order to do so, workers first need to understand the ins and outs of how their monthly Social Security check is calculated, and how their claiming age can really alter the payout pendulum.
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Social Security benefits are calculated using four components
Though a number of elements come into play when receiving a Social Security benefit -- for example, recipients may be exposed to federal and state-level taxation on their benefits -- there are four basic components the Social Security Administration (SSA) uses to calculate your retired-worker payout:
- Work history
- Earnings history
- Full retirement age
- Claiming age
The first two factors are fairly self-explanatory, but do come with a catch. The SSA takes a worker's 35 highest-earning, inflation-adjusted years into account when calculating their monthly benefit. If you earn more, on average, throughout your lifetime, there's a good chance you'll receive a beefier Social Security check during retirement. The catch is that for every year less than 35 worked, the SSA will average a $0 into your calculation. To maximize what you'll receive from America's top retirement program, you'll want to work at least 35 years.
The third component the SSA takes into account when calculating your retired-worker benefit is your full retirement age (FRA), which is determined by your birth year. Your FRA represents the point where you become eligible to receive 100% of the retired-worker benefit you're due. For much of today's labor force (anyone born in or after 1960), the FRA is 67.
The all-important fourth component used to calculate your Social Security benefit is your claiming age. Although benefits can begin as soon as an eligible retired worker turns 62, being patient can have its rewards. For every year an eligible retiree waits to take their Social Security check after their initial eligibility at age 62, their benefit can grow by as much as 8% annually, 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.
Should you claim benefits at age 62, 65, 67, or 70?
Something else that likely stands out from the table above is how sizable the payout differences can be depending on your claiming age.
For instance, a future retired worker born after 1960 who wants to begin receiving their benefit as soon as they're eligible would be accepting a permanent reduction to their monthly payout of 30%. But workers born after 1960 who are willing to wait until age 70 to claim their benefit can net a 24% boost above and beyond what they'd have received at FRA. If the October 2023 average retired-worker monthly benefit of $1,843.96 were to serve as the baseline, the gap between an age 62 and age 70 claim is nearly $1,000 per month.
However, claiming Social Security benefits isn't a cut-and-dried process. Every age from 62 through 70 has its positives and negatives. But among the gamut of choices at the disposal of future retirees, ages 62, 65, 67, and 70 are likely to be among the most popular.
Here's a brief breakdown of the advantages and drawbacks that each of these four claiming ages brings to the table for future retirees.
- Age 62: The front-and-center benefit of the earliest claiming age possible for retired workers is not having to wait to receive a monthly check. On the other hand, an age 62 claim can permanently reduce your monthly payout by up to 30%. It can also expose beneficiaries to the retirement earnings test, which allows the SSA to withhold some or all of your benefit, depending on how much you earn in a given year.
- Age 65: In the decades following Social Security's inception, age 65 was the FRA. But for future generations of retirees, it represents a possible middle-ground approach that'll minimize their permanent monthly payout reduction, yet still allow them to get their hands on monthly income relatively soon. The disadvantages with an age 65 claim are similar to age 62's: a permanently reduced monthly check and possible exposure to the retirement earnings test.
- Age 67: Claiming benefits at age 67 is liable to become an increasingly popular choice, since it's the FRA for a majority of today's workforce. Waiting five years, post-eligibility, to begin receiving benefits will ensure that workers born in or after 1960 receive 100% of their monthly payout. However, if an age 67 claimant lives well past age 80, there's a good chance they'll have left Social Security income on the table.
- Age 70: The final claiming age that should continue to gain prominence is age 70. The clear advantage of waiting eight full years, post-eligibility, to begin receiving your retired-worker benefit is the highest monthly check possible. The downside is that there's no guarantee you'll live long enough to maximize your lifetime benefit from Social Security.
Which of these four claiming ages -- 62, 65, 67, or 70 -- offers the best chance for future generations of retirees to maximize what they'll receive from Social Security? A broad-based study released four years ago appears to have the answer.
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One claiming age is the likeliest to maximize lifetime benefits from Social Security
In 2019, online financial planning company United Income released an all-encompassing study ("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 goal for United Income and its researchers was to determine how these 20,000 claimants fared. More specifically, it was to extrapolate their Social Security claims decisions to determine if they were optimal -- that is, produced the highest lifetime income possible. Understand that the peak monthly benefit may not be synonymous with the highest lifetime income.
This comprehensive study found a near-perfect inversion between actual retired-worker claims and extrapolated optimal claims. In simpler terms, most of the 20,000 claimants examined began receiving their retired-worker benefit prior to FRA, while the vast majority of optimal claims occurred at or after FRA.
United Income's dataset found that just 8% of aggregate claims would have been optimal at ages 62 through 64. Age 65 was more or less on par with the success rate of age 62. Statistically, ages 62 through 65 (not in this order) offer the lowest probability of an optimal claim among the gamut of possible claiming ages.
By comparison, 57% of the retired workers examined would have maximized their lifetime Social Security income with an age 70 claim. Though age 67 was the second most successful claiming age behind age 70, it would have been the correct choice for only around 10% of the retired workers studied.
Admittedly, not every retired worker can wait until age 70 to begin receiving their Social Security benefit. Factors like personal health, marital status, and financial needs will play a role in determining which claiming age works best.
Although we'll never know which age is ideal for us ahead of time -- we'd need to know our "departure" date for that to happen -- a later claim is statistically going to be optimal more often than not.
