When to claim Social Security is an important financial decision with life-long repercussions. Every scenario has pros and cons. Workers can maximize their benefit by claiming at age 70, but doing so means going without Social Security for several years. Alternatively, workers can maximize the number of payments they receive by claiming at age 62, but doing so means a smaller benefit for life.
Ultimately, the best age to start Social Security depends on personal financial goals. For many people, that means getting as much money as possible from the program. Read on to see how claiming age impacts Social Security payouts, and to learn which claiming age is most likely to maximize lifetime benefits.
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How claiming age impacts Social Security benefits for retired workers
Social Security retirement benefits are based on lifetime income and claiming age. A formula is applied to income from the 35 highest-earning years of work to calculate the primary insurance amount (PIA) for a worker. The PIA is the benefit the worker would receive if they took Social Security at full retirement age (FRA). The PIA is then adjusted for early or delayed retirement based on claiming age.
To elaborate, workers who start Social Security before their FRA receive a smaller payout, meaning the get less than 100% of their PIA. Workers that start Social Security after their FRA receive a bigger payout, meaning they get more than 100% of their PIA. The only two caveats are that (1) eligibility begins at age 62, so no one can claim earlier, and (2) delayed retirement credits stop accruing at age 70, so it never makes sense to claim later than that.
The chart below shows the relationship between FRA and birth year, and it details the Social benefit (as a percentage of PIA) retired workers would receive if they claimed Social Security age 62 and age 70. In other words, the chart illustrates the maximum reduction for claiming early, and the maximum increase for claiming late.
Chart by Author.
Most workers can maximize Social Security by claiming benefits at age 70
A recent study funded by the Federal Reserve Bank of Atlanta examined the best age for retired workers to take Social Security. That outcome was defined as the age most likely to maximize lifetime benefits and spending. The authors concluded that "virtually all American workers aged 45 to 62 should wait beyond age 65 to collect. More than 90 percent should wait till age 70."
The study used the 2018 American Community Survey to estimate retirement ages for workers who participated in the Federal Reserve's 2019 Survey of Consumer Finance (SCF). That SCF population was run through an analytics program twice that accounted for differences in lifespan, earnings, and taxes, among other variables. The first pass established a pre-optimization baseline, and the second pass showed the increase in benefits and spending power gained from optimizing Social Security.
The chart below details the results. Specifically, it shows the portion of workers aged 45 to 62 who would optimize lifetime Social Security benefits at various ages.
|
Social Security Claiming Age |
Retired Workers Who Optimize Benefits |
|---|---|
|
62 |
0% |
|
63 to 65 |
0.6% |
|
66 to 69 |
7.8% |
|
70 |
91.6% |
Source: David Altig, Laurence J. Kotlikoff, Victor Yifan Ye. How Much Lifetime Social Security Benefits Are American Leaving on the Table? National Bureau of Economic Research. November 2022.
As shown above, virtually no workers aged 45 to 62 would maximize their benefit by claiming Social Security at age 65 or earlier. But 91.6% of those workers would maximize their benefit by claiming at age 70.
Building on that, the authors concluded that the median worker in that age cohort would lose $225,944 in lifetime benefits by not optimizing Social Security. That translates into $182,370 in lost lifetime discretionary spending after taxes and other adjustments. In other words, based on current behavior patterns, most workers are shortchanging themselves by claiming Social Security too early.
The best age to claim Social Security depends on personal circumstances
To summarize, the study made two important points. First, the median worker aged 45 to 62 could increase their lifetime benefits by $182,370 by optimizing Social Security benefits. That means half of workers in that age cohort would see a bigger increase in spending power if they chose to optimize benefits. Second, more than 99% of workers aged 45 to 62 would have to claim Social Security after age 65 to optimize benefits, and more than 90% would have to claim at age 70.
However, there are downsides to delaying retirement benefits. Most notably, retirees must give up income in the present to earn a bigger benefit in the future, which entails a lower living standard in the interim. Additionally, a spouse cannot claim spousal benefits unless their retired partner is receiving retirement benefits. So a retiree's decision to delay Social Security could also force their spouse to delay Social Security.
Also noteworty, the authors assumed a maximum age of 100 when assessing the advantages of delaying Social Security. That means the results are irrelevant to individuals with no chance of living to age 100.
Ultimately, some workers would gladly exchange a little spending power for more consistent income throughout retirement, while others would prefer to maximize spending power at any cost. To that end, the best age to claim Social Security is a personal decision that depends on individual circumstances and preferences, and that decision is best made with help from a financial advisor.
