Social Security plays a pivotal role in many retirees' financial lives. For millions of Americans, it accounts for a large portion of their retirement income. Despite how beneficial Social Security can be, plenty of people will agree that it's not the easiest program to understand and navigate.
From cost of living adjustments (COLAs) to full retirement age to potential tax rates and so forth, there's no shortage of details to familiarize yourself with. One of the most important numbers you should know, however, is your breakeven age because it can help with the timing of your claiming decision.
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It all starts with your full retirement age
Before addressing the breakeven age, it's important to understand the role of your full retirement age in Social Security. Your full retirement age is when you're eligible to receive your primary insurance amount (PIA). Your PIA is the baseline for your benefits, and claiming early or late involves adjustments to that baseline.
You can claim benefits beginning at 62, but your monthly payout will be reduced based on how many months away your full retirement age is. For instance, someone whose full retirement age is 67 would have their monthly benefit reduced by 30% total if they claim at 62.
Conversely, you can delay benefits past your full retirement age, increasing them by two-thirds of 1% each month, or 8% annually (until they max out at age 70). Below are the full retirement ages by birth year:
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Consider your breakeven age before deciding when to claim benefits
When to claim Social Security benefits is one of the most important retirement decisions you'll make since it'll affect how much you receive. Looking at your breakeven age is helpful in making this decision, especially when weighing two different scenarios. The breakeven age can tell you when the cumulative benefits received from claiming at one age equal those received at another age. Common comparisons happen between 62 versus FRA, 62 versus 70, and FRA versus 70, though you can apply the concept to any other ages you may be considering.
For example, let's imagine your full retirement age is 67 and you have a PIA of $1,900 (just below the estimated monthly average for retired workers in Jan. 2024). If you delay benefits until 70, you'll receive a 24% increase in your monthly payout, bringing it to $2,356.
| Monthly Benefit | Total by Age 80 | Total by Age 82.5 |
|---|---|---|
| $1,900 | $296,400 | $353,400 |
| $2,356 | $282,720 | $353,400 |
Calculations by author.
If you were debating between claiming at 67 versus 70, 82.5 would be your breakeven age. Before that point, the total amount received from claiming at 67 is more than what you'll receive claiming at 70, even with the higher monthly payout.
Now, let's imagine you're debating between claiming at 62 or 67. At 62, your monthly benefit would be reduced by 30% to $1,330. Here's how your breakeven age would play out:
| Monthly Benefit | Total By Age 78 | Total By Age 79 |
|---|---|---|
| $1,330 | $255,360 | $271,320 |
| $1,900 | $250,800 | $273,600 |
Calculations by author.
In this scenario, at age 78, the total benefits received from claiming at 62 still exceed those from claiming at 67, but the result flips by the next year.
Breakeven age is an important factor but not the only factor
Your breakeven age is a good starting point for helping you decide when to claim benefits, but the decision should be holistic. You'll want to consider other important factors, like your financial situation, personal and family health history, and retirement plans.
For people in immediate financial need, claiming benefits as early as possible is probably the best route regardless of breakeven age. You don't want to jeopardize your current livelihood to maximize future benefits. For people who have a retirement nest egg saved up and aren't financially strained, waiting for a higher monthly benefit could be a good route.
Whatever the case, make sure you consider all factors affecting your individual situation to make an informed decision.
