For an overwhelming majority of retired workers, their Social Security income is a necessity to make ends meet. Based on annual surveys conducted by national pollster Gallup that date back more than two decades, no fewer than 80% of then-current retirees responded that they rely on their Social Security payout as a "major" or "minor" source of income.
While most working Americans will qualify for a Social Security benefit, statistics show that very few are maximizing what they receive. To get the most out of America's top retirement program, future retirees will need to understand the ins-and-outs of how their benefit is calculated, which includes how much their claiming age can alter their monthly and/or lifetime payout.
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These four factors are used to calculate your Social Security check
While certain aspects of Social Security can be complex or confusing, such as early filer penalties and the potential to be taxed on a portion of your benefits at the federal and state level, the four factors relied on by the Social Security Administration (SSA) to calculate your monthly check are plain as day:
- Earnings history
- Work history
- Full retirement age
- Claiming age
The first two elements on this list are inseparable. When determining your monthly payout, the SSA will account for your 35 highest-earning, inflation-adjusted years. Note, "earnings" refers to wages and salary, but not investment income. If you earn a higher average wage or salary throughout your lifetime, there's a good chance you'll receive a beefier payout during your golden years.
On the other hand, the SSA will penalize you if you don't work at least 35 years. For every year less of 35 worked, the SSA averages a $0 into your calculation.
The third criterion is your full retirement age -- i.e., the age you become eligible to receive 100% of your retired-worker benefit. Your full retirement age is determined by your birth year, and is thus the only factor listed here that you have no control over. For anyone born in or after 1960 (i.e., most of today's workers), the full retirement age is 67.
The fourth factor used to calculate your Social Security check, and the one that undeniably swings the payout pendulum more than any other item, is your claiming age.
Although eligible beneficiaries have the option of claiming their payout as early as age 62, the program strongly encourages workers to be patient. This "encouragement" comes in the form of a financial incentive. For every year a worker waits to take their payout, their benefit can grow by as much as 8%, beginning at age 62 and continuing through age 69, as shown 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.
These are the very clear best and worst ages to claim Social Security benefits
As you can see in greater detail, there's a vast difference in monthly payout depending on when you take your Social Security benefit.
For instance, claiming benefits at age 62 would give you instant access to your payout. It would also reduce your monthly check by 25% to 30%, depending on your birth year, and expose you to early filer penalties, which may include benefit withholding via the retirement earnings test.
Comparatively, waiting until age 70 will maximize your monthly benefit and can increase your payout by 24% to 32% above what you'd have received at full retirement age. There is, of course, the potential downside that you may not live long enough to also maximize your lifetime payout from Social Security by waiting eight years, post-eligibility, to take your benefit.
Every age has its unique set of advantages and drawbacks within the traditional claiming age range of 62 through 70.
The million-dollar question is: Which ages are the best and worst when it comes to maximizing what you'll receive from Social Security?
To answer that question, let's turn to an all-inclusive study published five years ago by the researchers at online financial planning company United Income.
Image source: Getty Images.
In the 2019 report, "The Retirement Solution Hiding in Plain Sight," United Income's researchers used data from the University of Michigan's Health and Retirement Study to extrapolate the claiming decisions of 20,000 retired workers to determine if they'd made an "optimal" choice. In simpler terms, United Income examined whether or not retired workers made a Social Security claiming decision that netted them the maximum possible lifetime income (note the emphasis on "lifetime").
What may come as little surprise is that only 4% of the 20,000 claimants examined made an optimal choice. Without knowing our "expiration" date ahead of time, there's always going to be some degree of guesswork involved when determining which age is best to take our Social Security benefit.
But the more-important takeaway from United Income's report is that there are very clear best and worst claiming ages. Although 79% of the 20,000 retired-worker beneficiaries examined began taking their payout at ages 62 through 64, only a combined 8% of optimal claims occurred at these three ages. Age 64 proved to be the worst claiming age of all, with fewer than 2% of claims being optimal.
On the flipside, United Income discovered that the overwhelming majority of optimal claims occurred at or after full retirement age. In particular, age 70 stood out as the undisputed best age to begin receiving Social Security benefits. This comprehensive study found that waiting until age 70 would have been optimal for a whopping 57% of claimants. The next best claiming age was 67, which would have maximized lifetime benefits for about 10% of retired workers.
To be clear, this doesn't mean every future retiree is going to maximize their lifetime payout with an age 70 claim. Everyone needs to take into consideration their unique set of circumstances, including personal health, marital status, and financial needs. Occasionally, an early claim can make all the sense in the world.
But when examined as a whole, being patient will give a majority of future retirees their best chance to maximize what they'll receive from America's top retirement program.
