There's arguably no social program more vital to the financial well-being of our nation's seniors than Social Security. Every year, Social Security pulls more than 21.7 million people out of poverty, including close to 15.4 million adults aged 65 and over.
What's more, up to 90% of the retirees that national pollster Gallup has been surveying annually for more than two decades have noted that they rely on their monthly Social Security check to cover at least some portion of their expenses.
Ensuring the financial health of future retired workers means getting as much as possible out of America's top retirement program. But in order for that to happen, future generations of retirees first need to understand what factors influence their monthly benefit, and how their claiming age can dramatically boost or lessen what they'll receive each month, and during their lifetime, from Social Security.
Image source: Getty Images.
The four factors that matter when calculating your monthly Social Security check
Social Security can be a bit of a quirky and complex program at times. For instance, benefits may be exposed to taxation at the federal level, as well as in 10 states. But when it comes to determining monthly retired worker benefits, the four factors used by the Social Security Administration (SSA) are straightforward:
- Earnings history
- Work history
- Full retirement age
- Claiming age
The first two components used to calculate your retired worker benefit are inseparable. The SSA will use your 35 highest-earning, inflation-adjusted years when determining how much you'll receive each month. This means if you earn a high wage or salary throughout your lifetime, you'll probably receive a larger benefit during retirement.
However, one important tidbit to note is that the SSA will penalize you if you don't work at least 35 years. The SSA will average a $0 into your calculation for every year less than 35 worked. Thus, you'll want to work a minimum of 35 years if you have any aspiration of maximizing your monthly and lifetime benefit from Social Security.
The third item, your full retirement age (which is sometimes referred to as "normal retirement age"), details the age you become eligible to receive 100% of your monthly benefit and is entirely determined by the year you're born. For anyone born in 1960 or later (i.e., much of today's workforce), full retirement age is 67.
The fourth factor, and the one with the greatest bearing on what you'll receive each month from America's top retirement program, is your claiming age. Even though benefits can begin at age 62 for retired workers, Social Security strongly incentivizes patience. For every year a worker waits to claim their payout, beginning at age 62 and continuing through age 69, their benefit can increase by as much as 8%, as you can see 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.
What's the average Social Security benefit at ages 62 and 67?
Based on variables that include your birth year and claiming age, taking your payout as soon as possible could reduce your monthly benefit by as much as 30%. On the flip side, exercising patience and claiming your payout at age 70 can pump up your monthly benefit to between 24% and 32% above what you'd have received at full retirement age.
Although every age within the traditional claiming age range (62 through 70) has its pros and cons, ages 62 and 67 are two of the more popular choices for retirees.
The draw of claiming retired worker benefits at age 62 is not having to wait to get your hands on your payout.
Additionally, the 2023 Social Security Trustees Report estimated that the Old-Age and Survivors Insurance (OASI) Trust Fund could exhaust its assets reserves by 2033. Though Social Security is in no danger of bankruptcy or insolvency, sweeping benefit cuts of up to 23% may be necessary to sustain payouts through 2097 if the OASI's asset reserves are depleted. An early claim could help retirees front-run potential benefit cuts.
On the other hand, the lure of an age 67 claim is not having to worry about a reduction to your monthly benefit. Since most of today's workforce is born in or after 1960, their full retirement age is 67. This makes it a psychologically important claiming age for a lot of future retirees.
It's also worth noting that life expectancy in the U.S. has risen by 13 years since the first Social Security retired worker check was mailed out in January 1940. Living longer means there's a good chance we'll need more income later in life. Waiting five years to claim benefits, post-eligibility, ensures that future retirees are receiving no less than 100% of what they're due.
With a better understanding of what might compel someone to claim Social Security benefits at ages 62 and 67, let's dive into what beneficiaries are taking home each month at these respective ages. Keep in mind that the following average benefit amounts are based on the age of a recipient, as of December 2022, and isn't necessarily indicative of the age they claimed their payout. In other words, age 67 beneficiaries could have claimed their benefit anywhere from age 62 through age 67.
Based on annually updated data from the SSA's Office of the Actuary, the close to 566,000 62-year-old beneficiaries were bringing home $1,274.87 in December 2022. By comparison, the nearly 2.85 million 67-year-old beneficiaries received $1,844.83 in the comparable period.
A difference of just five years has resulted in an average benefit that's almost 45% higher at age 67.
Image source: Getty Images.
Is there a superior claiming age?
To be fair, there's no perfect blueprint future retirees can follow that guarantees they'll receive the maximum lifetime benefit from Social Security. Without knowing the date of your passing, there's always going to be some level of guesswork involved.
Keeping this mind, the researchers at online financial planning company United Income tackled the age-old question of which claiming age(s), if any, are superior. They did this by using data from the University of Michigan's Health and Retirement Study and examining the claims of 20,000 retired workers. The purpose was to extrapolate these claiming decisions and determine if an optimal choice was made -- i.e., "optimal" in the sense that the individual generated the highest possible lifetime income from Social Security.
The broad-based finding from United Income is that very few claimants make an optimal decision. In other words, Social Security dollars are ultimately being left on the table.
More importantly, researchers found that optimal claiming decisions were concentrated on the latter half of the traditional claiming-age range. Whereas just 8% of claimants would have maximized their lifetime payout from ages 62 through 64, more than 80% of claims made at or after full retirement age would have been optimal. United Income specifically notes that 57% of the 20,000 claims studied would have maximized lifetime benefits if taken at age 70.
For added context, age 67 was the second-most optimal claiming age, behind age 70. However, age 67 would have only maximized lifetime payouts for around 1 in 10 retirees, as opposed to the noted 57% at age 70.
To reiterate, this data doesn't mean an early claim won't work out or make sense for some retirees. People with chronic health conditions that could shorten their life expectancy, as well as lower-earning spouses, may find it makes a lot of sense to claim benefits early and accept a permanent reduction to their monthly payout.
Since we (thankfully!) don't know our own "expiration" date, we're all going to take into account our financial needs, personal health, marital status, and other factors when determining what claiming age is best.
But on a purely statistical basis, United Income's study pretty conclusively shows that waiting to claim Social Security benefits is going to work out more often than not for future generations of retired workers.
