If you had to rank questions surrounding retirement in order of importance, when you should claim Social Security would be near the top because it determines how much you receive in monthly benefits, which is a key component of many people's retirement finances.
Your full retirement age (FRA) is when you're eligible to receive your basic monthly benefit, but you can claim sooner or later than this age. Claiming benefits before FRA (as early as age 62) will reduce them permanently based on how early you claim, and delaying benefits does the opposite (up to age 70).
Although the thought of higher monthly benefits is appealing, there's one key reason why that might not be the best route to take.
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Figuring out if higher payments are worth the missed payments
When deciding when to claim Social Security benefits, you should consider your break-even age, or the age when the total amount received by claiming benefits at one age equals the total from claiming at another age.
To see it in action, let's imagine your FRA is 67 and your benefit at that age is $2,000. If you delay until 70, your benefit will increase two-thirds of 1% each month until it peaks at $2,480. Here's the total amount of benefits you would have received by different ages:
| Monthly Benefit | Total Benefits Received by Age 80 | Total Benefits Received by Age 82 1/2 | Total Benefits Received by Age 83 |
|---|---|---|---|
| $2,000 (filing at 67) | $312,000 | $372,000 | $384,000 |
| $2,480 (filing at 70) | $297,600 | $372,000 | $386,880 |
Calculations by author.
As you can see, the higher benefit from claiming at 70 doesn't offset the fewer checks you receive due to delaying until well into your 80's.
Your break-even age is only one part of the equation
Once you know your break-even age, it's worth noting projected life expectancies. According to the Social Security Administration, here are the life expectancies of men and women at 67 and 70:
| Age | Men's Life Expectancy | Women's Life Expectancy |
|---|---|---|
| 67 | 82.58 | 85.10 |
| 70 | 83.59 | 85.82 |
Data source: Social Security Administration.
In the case of men, the life expectancy at 67 and 70 are close to the break-even age. Women are expected to live a bit longer than the break-even age, but in both cases, you have to decide if the higher benefit is worth the many months of smaller Social Security payments you give up.
If your benefit at 67 is $2,000 and you delay until 70, you'll miss out on $72,000 in payments over that span. You might make it up on the back end, but that's $72,000 that could go toward immediate financial needs or fulfilling personal retirement goals.
Be sure to consider your personal situation holistically
Comparing your break-even age to life expectancy is a great starting point, but it's not as effective if you don't consider your personal situation too.
If you have a history of health complications, claiming earlier than later is likely in your best interest. If you're in tip-top health with a family history of longevity, delaying benefits to maximize the monthly check makes sense as the superior option.
But if you're financially strained as you enter retirement, you might not be in a position to delay benefits until your full retirement age, let alone age 70 -- and that's okay. There's no single approach that works for everyone. It's important to consider your personal circumstances and retirement goals when deciding the right timing for yourself.
