A popular song of the 1940s included the line, "Don't mess with Mr. In-between." When it comes to Social Security, many people don't follow that advice.
The earliest age for claiming Social Security retirement benefits is 62. The full retirement age (FRA) for anyone born in 1960 or later is 67. That makes age 65 close to being "Mr. In-between." A little over 13% of Americans claimed Social Security at age 65 in 2022, according to the Social Security Administration (SSA).
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How Social Security benefits are calculated at age 65
Social Security benefits are calculated the same way for any age -- up to a point, anyway. SSA follows three key steps.
First, the agency calculates a worker's average indexed monthly earnings (AIME). SSA uses up to 35 years when an individual earned the most money. Those earnings are adjusted (indexed) to factor in the changes in overall wage levels during the period.
Second, SSA determines an individual's primary insurance amount (PIA) using his or her AIME. I'll spare you the details on how the PIA is calculated. It's complicated.
When you claim Social Security retirement benefits comes into play with the third step in the process. If you begin receiving benefits at your FRA, your monthly benefit will match your PIA. However, if you claim benefits before or after your FRA, the benefits will be adjusted.
SSA reduces the monthly benefit by five-ninths of 1% for each month (up to 36 months) before the FRA. Anyone who claims Social Security before this 36-month period will have their benefits reduced by five-twelfths of 1% per month.
If you turn 65 this year and claim Social Security, your monthly benefit will be 87.78% of your PIA. If you claim Social Security at age 65 after 2024, your monthly benefit will be 86.67% of your PIA.
The average Social Security benefit for 65-year-olds
So what is the average Social Security benefit for retired workers at age 65? In December 2022 (when the latest data was compiled by SSA), the monthly benefit amount stood at $1,504.98. This equates to an annual benefit of nearly $18,060.
The averages are different for men and women. Retired men aged 65 received an average monthly benefit of $1,670.99 (nearly $20,052 per year). Retired women aged 65 received an average monthly benefit of $1,355.81 (nearly $16,270 per year). These differences are due to different average earnings for the two sexes.
When the next SSA statistical report comes out, you can bet that the average benefit amounts will be higher. Since December 2022, Social Security beneficiaries have received two cost-of-living adjustments (COLAs) -- an 8.7% increase in 2023 and a 3.2% bump in 2024.
Average earnings could have also increased. If so, this would boost retirees' AIMEs, PIAs, and average monthly benefits.
Pros and cons of claiming Social Security at 65
There are some good reasons to claim Social Security at age 65. Perhaps most importantly, it's the age of eligibility for Medicare. That's a big plus since healthcare is a major cost for retirees.
Of course, there are also some downsides to collecting retirement benefits at 65. The obvious one is the early retirement penalty.
From a financial standpoint, most Americans will be better off waiting until 67 (or even better, age 70) to claim Social Security. However, the allure of retiring early and being able to receive Medicare benefits can be tempting. Messing around with Mr. In-between isn't a bad strategy for some.
