For most Americans, Social Security provides a financial foundation during their golden years. More than two decades of annual surveys from national pollster Gallup have shown that as many as 90% of then-current retirees lean on their monthly Social Security benefit to cover at least a portion of their expenses.
The same holds true for future generations of retired workers. Gallup's annual polls found that between 76% and 88% of non-retirees anticipate relying on their Social Security income to make ends meet once they hang up their proverbial work coats for good.
What Gallup's annual surveys pretty clearly show is that getting the most out of Social Security is imperative to the financial well-being of future beneficiaries. But in order to optimize what you'll receive from America's top retirement program, you'll first need to understand the ins and outs of how your Social Security benefit is calculated, as well as how your claiming age can meaningfully affect your monthly payout.
Image source: Getty Images.
These four "ingredients" are used to calculate your monthly Social Security check
There are a number of factors that can impact what you'll receive and/or keep from Social Security. For instance, early filers can be exposed to the retirement earnings test, while high earners may face federal and state-level taxation on their benefits. But when chiseled down to the basics, four "ingredients" are used by the Social Security Administration (SSA) to calculate your monthly benefit:
- Earnings history
- Work history
- Full retirement age
- Claiming age
With respect to the first two components, the SSA will account for your 35 highest-earning, inflation-adjusted years when determining your monthly Social Security benefit. This means if you earn more throughout your lifetime, you can probably expect a larger monthly benefit check during retirement. Just keep in mind that the SSA will average a $0 into your calculation for every year less of 35 worked.
The third ingredient the SSA uses to calculate your monthly benefit is your full retirement age. This is the age you can collect 100% of your benefit, and it's entirely determined by your birth year. For anyone born in or after 1960 (i.e., most of today's workforce), the full retirement age is 67.
The all-important fourth ingredient that can really change the "recipe" for future beneficiaries is their claiming age. Though eligible retired workers can begin receiving a Social Security check as early as age 62, America's leading retirement program incents patience. For every year a retired worker waits to claim their benefit, beginning at age 62 and continuing through age 69, their monthly payout can grow by as much as 8%, 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 68?
It's one thing to look at percentages on a table -- but it's an entirely different story when you dig deeper into how much these percentage swings can impact Social Security checks on a nominal-dollar basis.
For example, eligible workers born in or after 1960 have the right to claim their Social Security benefit as early as age 62. But in doing so, they're accepting a permanent 30% reduction to their monthly payout. Making the assumption that the average retired-worker benefit of $1,843.96 in October 2023 is the baseline payout at full retirement age, an age 62 claim equates to a roughly $553-per-month haircut.
On the other hand, future retirees also have the option of waiting eight years after initial eligibility to maximize their monthly benefit with an age 70 claim. The 24% boost above what they'd have received at full retirement age would increase their monthly Social Security check by almost $443 per month. The difference between an age 62 and age 70 claim for much of today's labor force, based on the average retired-worker benefit in October, is almost $1,000 per month.
This massive monthly benefit gap is what's encouraging retirees to consider a middle-ground approach. In other words, not claiming right away to avoid the maximum permanent benefit reduction, but also not waiting eight full years to maximize monthly payouts. It's precisely why age 68 was the claiming age for approximately 13% of retirees in 2022.
Just how much is the average retired-worker beneficiary taking home at age 68? Based on data from the SSA's Office of the Chief Actuary in December 2022, the 2,904,121 retired workers at this age were bringing home $1,848.10 per month, or roughly $22,177 on an annual run-rate basis. For some context, this is 31% higher than the average monthly benefit for age 62 beneficiaries, roughly on par with the average retired-worker benefit at age 67, and approximately 9% below what age 70 recipients are taking home each month.
Among the gamut of claiming ages from 62 through 70, age 68 is the literal middle of the pack in popularity. It trailed ages 66, 62, 67 and 65 (in that order) in claim popularity among retired workers in 2022, while being more popular than ages 69, 70, 64, and 63 (also in that order).
Though increased longevity since retired-worker payouts began in January 1940 may encourage future retirees to exercise patience, one all-inclusive study found the middle-ground approach to be somewhat lacking for retirees.
Image source: Getty Images.
Patience often pays off for Social Security claimants
Let me preface this by noting that there is no foolproof way to know if you've made the best possible Social Security claiming decision. To make an optimal claim, we'd need to know the date of our "expiration," which none of us (thankfully!) knows ahead of time.
With this being said, researchers at online financial planning company United Income examined 20,000 retired-worker claims using data from the University of Michigan's Health and Retirement Study to determine if these retirees made an optimal claim -- "optimal" in the sense that the claim led to the highest possible lifetime income (key phrase) for the worker.
When United Income published the results of its study in 2019, the data spoke for itself. While most of the 20,000 claims examined were taken prior to retired workers reaching their full retirement age, optimal claims were overwhelmingly at or after the full retirement age. Put another way, the vast majority of retired workers left Social Security income on the table.
Ages 62 through 65 (not in this order) gave retired workers the lowest probability of an optimal claim. By comparison, claiming at age 70 would have maximized lifetime payouts for 57% of the 20,000 claimants examined. Although age 68 was the fourth most-optimal age to begin receiving Social Security benefits, it modestly trailed ages 69 and 67, and was well behind age 70.
To be fair, not every future retiree is going to have the ability to wait until age 70, or even age 68, to begin receiving their Social Security check. Factors such as personal health, marital status, and financial needs will all need to be accounted for and may ultimately result in an earlier claim.
Nevertheless, the findings from United Income's study are crystal clear. If future retirees want to maximize what they'll receive from Social Security, a later claim gives them a considerably higher probability of doing so.
