No social program ensures the financial well-being of America's aging workforce more than Social Security. According to recently updated estimates from the Centers on Budget and Policy Priorities, America's top retirement program lifts almost 22.7 million people out of poverty each year, including 16.5 million adults aged 65 and over. It's also singlehandedly reduced the elderly poverty rate by roughly three-quarters, compared to what it would be if Social Security didn't exist.
Considering how important Social Security benefits are to the financial foundation of our nation's retirees, it's imperative that you get as much as you can out of the program. But in order to maximize what you'll receive, you'll first need to be aware of the variables that affect your monthly Social Security check, including the age you begin taking benefits.
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These four variables are used to calculate your Social Security benefit
Although Social Security can be full of surprises -- e.g., did you know that Social Security benefits may be taxable at the federal level, as well as in 10 states, depending on your provisional income? -- calculating your monthly Social Security benefit is straightforward. The Social Security Administration (SSA) relies on four variables to determine your payout:
- Work history
- Earnings history
- Full retirement age
- Claiming age
As you may have correctly surmised, work history and earnings history are inseparable. The SSA will rely on your 35 highest-earning, inflation-adjusted years when calculating how much you'll receive in monthly retired-worker benefits. It also means that workers with higher average annual salaries or wages are likely to receive a larger Social Security check during retirement.
However, one thing to keep in mind is that there's a penalty for working fewer than 35 years. For every non-working year below that threshold, the SSA will average a $0 into your calculation. If you have any hope of maximizing what you'll receive from Social Security, you'll want to work at least 35 years (if not more) to remove your lowest-earning years from the equation.
The third factor, your full retirement age, is the lone component that you have no control over. Your full retirement age (also known as "normal retirement age" by the SSA) is the age you're eligible to receive 100% of your retirement benefit, and it's determined by your birth year. Social Security's full retirement age has ranged from 65 to 67 since its inception.
The fourth variable, and the one that has the greatest potential to swing the proverbial payout pendulum, is your claiming age. Eligible beneficiaries can begin receiving their retired-worker benefit as early as age 62. However, Social Security strongly encourages workers to be patient. For every year an eligible beneficiary waits to claim their payout, beginning at age 62 and continuing through age 69, their monthly benefit can grow by as much as 8%. The impact of waiting is highlighted 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.
Should you claim benefits at age 62, 65, or 70?
Even with a keen understanding of the variables that affect your monthly Social Security benefit, deciding on a claiming age can be difficult. Without knowing our "expiration" date, there's no way to concretely know if we've made the correct choice ahead of time. This means all claiming decisions will involve at least some degree of guesswork.
Nevertheless, some ages within the traditional claiming-age range (62 through 70) stand out as logical choices for future retirees. Specifically, I'm alluding to ages 62, 65, and 70, which have their own unique advantages and drawbacks.
- Age 62: The most compelling reason to take your Social Security benefit at age 62 is to get your hands on your payout while you're still young enough to enjoy it. There's also the possibility of sweeping benefit cuts for retired workers as soon as 2033. Taking your payout at age 62 would help front-run a potential reduction in benefits. However, claiming at 62 can permanently reduce monthly benefits by up 30%, as well as expose early filers to an assortment of penalties, including the retirement earnings test, which can result in some or all of your benefits being withheld by the SSA.
- Age 65: What makes claiming at 65 attractive is that it represents a middle-ground approach. Eligible workers can wait three years and minimize how much their payout is permanently reduced. At the time same time, they'll still be young enough to enjoy the added income they receive. On the flip side, claimants aged 65 can still be exposed to early-filer penalties, and may be leaving a lot of money on the table if they live well into their 80s (if not longer).
- Age 70: The reason age 70 is an intriguing claiming age is because it maximizes what you'll receive each month from Social Security. The downside is that there's no guarantee you'll live long enough to max out what you'll receive over your lifetime from Social Security by foregoing eight years of claims eligibility.
With an upside and downside to every age within the traditional claiming-age range, you might be wondering if one or more of these ages offers a clear advantage over the others? While everyone's situation is going to be unique, a thorough study completed in 2019 does offer an undeniably huge clue as to which age is "best" when it comes to maximizing Social Security benefits.
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One claiming age is a statistically much smarter choice for a majority of future retirees
Five years ago, researchers at online investment management and financial planning company United Income released a report ("The Retirement Solution Hiding in Plain Sight") that analyzed the claims of 20,000 retired workers using data from the University of Michigan's Health and Retirement Study. What United Income aimed to do was extrapolate these claims to determine if retired workers had made an optimal decision -- "optimal" meaning a choice that maximized their lifetime income. Understand that maximizing lifetime income and monthly benefits may not be synonymous.
The superficial takeaway from United Income's study is that very few retired workers maximized what they received from Social Security. Only 4% of the 20,000 claims examined were optimal.
But the more important lesson was that actual claims and determined-to-be optimal claims were near inverses of each other. This is to say that while a majority of retired workers chose to take their payout prior to reaching full retirement age, the lion's share of optimal claims occurred at or after full retirement age.
Breaking things down a bit further, only around 8% of total claims from ages 62 through 64 proved optimal. Ages 62 through 65 (not in this order) offered the four lowest likelihoods of an optimal claim within the traditional claiming-age range.
On the other hand, 57% of age 70 claimants would have maximized what they received from Social Security. All told, around 80% of optimized claims occurred at or after age 67. Statistically speaking, patience pays off handsomely for retired workers when it comes to claiming Social Security benefits.
To be clear, there are situations where an early claim makes sense. For instance, an individual with one or more chronic health conditions that could shorten their life expectancy is likely to generate more lifetime income with an early claim. Additionally, a spouse with considerably lower lifetime income may be motivated to claim their payout early to provide income for their household while their higher-earning significant other allows their Social Security benefit to grow over time.
But when examined as a whole, United Income's thorough study clearly shows how powerful the waiting game can be for future retirees.
