The Social Security Administration paid out about $1.4 trillion in benefits last year, with $93.1 billion of that going toward retired workers and their dependents. The majority of seniors 65 and older rely on Social Security to help them cover their retirement expenses, with many citing it as a major source of income.
So it only makes sense that people want to maximize their checks. Below, we'll talk about how the government calculates your benefit and how signing up at 62 -- one of the most popular claiming ages -- affects what you take home.
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How does the government calculate Social Security benefits?
There are a few parts to the Social Security benefit formula. In the first step, the government calculates your average indexed monthly earnings (AIME) by looking at your income during your 35 highest-earning years, adjusted for inflation. It divides the sum by 420 -- the number of months in 35 years. If you haven't worked this long, you'll have zero-income years added in, which reduces your final benefit.
In the second part, the Social Security Administration plugs your AIME into the benefit formula created in the year you turn 60. Here's the formula for those turning 60 in 2024:
- Multiply the first $1,174 of your AIME by 90%.
- Multiply any amount greater than $1,174 up to $7,078 by 32%.
- Multiply any amount greater than $7,078 by 15%.
- Total your results from the three steps above and round down to the nearest $0.10.
Formulas for other years are similar, except for the dollar amounts, which are known as the bend points. The Social Security Administration maintains a list of bend points from other years if you'd like to check which ones apply to you.
The result of this formula is known as your primary insurance amount (PIA). This is how much you get from Social Security if you sign up at your full retirement age (FRA). Your FRA depends on your birth year. It's between 66 and 67 for today's workers. But many choose to apply for benefits at other ages.
If you apply at any other time, the government runs yet another calculation to decide how to adjust your benefit to get to your final amount. When you claim early, you shrink your checks by:
- 5/9 of 1% per month for up to 36 months of early claiming
- 5/12 of 1% per month for each additional month of early claiming beyond 36 months
For those who apply right away at 62, that translates to a 25% benefit reduction if their FRA is 66 or a 30% reduction if their FRA is 67.
Your checks grow a little for each month you delay. They continue to do so past your FRA at a rate of 2/3 of 1% per month until you reach your maximum benefit at 70. That's 124% of your PIA if your FRA is 67 or 132% if your FRA is 66.
What's the average Social Security benefit at 62?
We may not always be able to control how much we earn throughout our careers or even how long we work. But we can choose when we sign up for Social Security benefits.
The average worker who claimed Social Security at 62 took home $1,274.87 as of December 2022, the most recent data available. If we add the 8.7% cost-of-living adjustment (COLA) for 2023 and the 3.2% COLA for 2024, we can estimate that these individuals are now earning about $1,430 per month, or about $17,160 per year.
This is quite a bit less than the overall average of $1,825.14 as of the end of 2022. This is no doubt due to the benefit reduction early claimers face, which has grown steeper as the FRA has risen. But that doesn't mean early claiming is always the wrong choice.
It can be a smart move for those who are struggling financially and those with short life expectancies. Delaying benefits in these cases could lead to significant debt, or to not receiving any benefits at all for people who die before they're able to sign up.
What's the best move for you?
It's ultimately a personal decision, but it's best to consider all your options first. If you don't want to attempt the math discussed above, you can create a my Social Security account. There's a calculator there that can estimate your Social Security benefit at every age based on your work history to date.
Consider how your claiming age will affect you in both the short and the long term. If you don't have pressing financial or health concerns, you might want to wait until the age you believe would earn you the largest lifetime benefit. To determine this, choose a claiming age and estimate how many months you expect to claim. Multiply this by your monthly benefit to determine how much that age would net you overall.
Compare a few options and choose a tentative claiming strategy for now. You can always adjust it over time if your income, health, or plans for retirement change.
