Reaching age 65 is a major milestone for Americans. It's the age of eligibility for Medicare. Because of this, it can also be viewed by many as an opportune time to retire.
You won't receive your full Social Security benefits if you begin collecting at age 65. However, the penalty isn't nearly as significant as claiming benefits at 62. What's the average Social Security benefit at age 65?
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How Social Security benefits at age 65 are calculated
The way that the Social Security Administration (SSA) calculates benefits for individuals who are 65 is relatively complicated. However, the process involves three major steps.
First, SSA determines the person's average indexed monthly earnings (AIME). This average includes up to 35 years of a worker's highest earnings. The earnings are indexed to account for the changes in overall wage levels that occurred during the period and rounded down to the nearest dollar amount.
Second, the agency uses the AIME to calculate the worker's primary insurance amount (PIA). This part of the process is the most complex part of all.
Third, SSA determines the individual's monthly retirement benefits using the PIA. For anyone who collects benefits at his or her full retirement age (FRA), their monthly benefit will be the same as the PIA. But it's been years since the FRA was 65. Any person who will turn 65 in 2024 will have an FRA of 66 and 10 months. If you turn 65 after 2024, your FRA will be 67.
SSA will reduce the monthly retirement benefit by five-ninths of 1% for each month before the FRA for up to 36 months. If you begin collecting Social Security earlier than that, the benefit will be further reduced by five-twelfths of 1% per month.
This means that a person turning 65 in 2024 who begins collecting Social Security retirement benefits can expect to receive 87.78% of the PIA. A person turning 65 after 2024 who begins collecting Social Security at that age will receive 86.67% of the PIA.
The average Social Security benefit at age 65
Because earnings history varies from person to person, the exact benefits you will receive at age 65 will differ from what others receive. The average Social Security retirement benefit at age 65, though, is $1,504.98 based on the latest data from SSA.
The averages are different for the two sexes due to the earnings discrepancy. The average retirement benefit for men at age 65 is $1,670.99 compared to $1,355.81 for women.
Note, though, that these averages come from SSA's annual statistical supplement for 2023 with data current as of December 2022. It's a safe bet that if the averages were calculated for January 2024, they'd be higher.
For one thing, two cost-of-living adjustments (COLAs) have been applied to Social Security benefits since December 2022 -- an 8.7% increase in 2023 and a 3.2% increase this year. Also, it's possible, if not probable, that the average earnings of Americans used to calculate benefits have risen since then.
Waiting two to five more years can pay off handsomely
While we've focused on Social Security benefits at age 65, I'd be remiss if I didn't point out that waiting roughly two to five years to collect retirement benefits can pay off handsomely. Holding off until age 67 (or 66 and 10 months for those reaching 65 this year) will allow you to avoid the early retirement penalty.
Collecting Social Security benefits at age 70 is even more financially advantageous. This will boost your monthly benefit by 24%. Although reaching age 65 is a major milestone, hitting 67 or 70 can be a better milestone.
