Retirement is often a time of celebration, but there is no shortage of decisions recent retirees have to make. One of the most important is when they will claim Social Security since these benefits account for a significant portion of income for millions of Americans in retirement.
Unfortunately, the decision isn't straightforward because varying personal situations require different approaches and considerations. However, one key number can help you decide when claiming makes sense for you: your break-even age.
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Your decision should begin with your full retirement age
Your full retirement age (FRA) is noteworthy because it's when you're eligible to receive your base Social Security benefit (also called the primary insurance amount, or PIA). The Social Security Administration uses your PIA to calculate any adjustments to your monthly benefit based on when you claim relative to your FRA.
So while you can claim benefits as early as 62, your monthly benefit will shrink based on how many months away your FRA is. If you're within 36 months of your FRA, benefits are reduced by 5/9 of 1%; any additional month reduces them by 5/12 of 1%. For instance, someone whose full retirement age is 67 would have their monthly benefit reduced by 20% if they claim at 64 and 30% at 62.
Conversely, you can delay benefits past your FRA, increasing them by two-thirds of 1% each month, or 8% annually, until you reach 70.
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Be sure to look beyond just the monthly benefit
The prospect of receiving Social Security benefits as early as possible or maxing out your monthly benefit may be enticing, but those factors alone shouldn't be what drives your decision on when to claim. Instead, it's helpful to take a big picture view of the total amount of Social Security you'll receive in retirement, also known as your lifetime or cumulative benefits. This is where your break-even age can help put things in perspective.
Your break-even age is when the total amount of benefits received from claiming at one age equals that of another age. To illustrate, let's use someone whose FRA is 67 with a PIA of $1,900 (just below the monthly average for retired workers in Jan. 2024). In this case, delaying benefits until 70 would increase their monthly check 24%, bringing it to $2,356.
Here's how much this person would collect in cumulative benefits by different ages:
| Monthly Benefit | Total by Age 80 | Total by Age 82 1/2 | Total by Age 85 |
|---|---|---|---|
| $1,900 | $296,400 | $353,400 | $410,400 |
| $2,356 | $282,720 | $353,400 | $424,080 |
Calculations by author.
In this scenario, the person's break-even age is 82 1/2. Before then, the total amount received from claiming benefits at 67 is greater than the total amount received from delaying until 70, even with the extra $456 in each month's check. After age 82 1/2, it flips, and delaying benefits until 70 yields higher lifetime benefits.
Your break-even age should be one piece of the puzzle
Your should factor in your break-even age when claiming Social Security, but it shouldn't be the sole basis for your decision. You must also assess your financial situation, personal and family health history, and retirement goals.
If you can't cover your expenses without Social Security, claiming as soon as possible may be the only viable option, regardless of your break-even age. If you have a retirement nest egg and Social Security will just be supplemental income, delaying to receive a higher monthly payout could be worth it. Similarly, claiming earlier may be the best route to maximize lifetime benefits if you have major health concerns.
Everyone's situation is different, so the factors used in your decision-making process (and the weight they're given) will vary. What's most important is that you do take into account these relevant details, including your break-even age.
