In March, the average retired worker brought home $1,913.31 from Social Security. While this might not sound like much, the guaranteed payments provided by America's top retirement program have ensured the financial well-being of our nation's retirees for more than 80 years.
A recently updated analysis from the Center on Budget and Policy Priorities estimates the poverty rate for seniors aged 65 and above would be nearly 39% if Social Security didn't exist. But with eligible beneficiaries taking home a monthly payout, the senior poverty rate is just a shade above 10%.
It's also a program that most retirees lean on to cover at least some portion of their expenses. More than two decades of annual surveys from national pollster Gallup have shown that 80% to 90% of retired-worker beneficiaries rely on their Social Security income to make ends meet.
Getting the most you can out of Social Security may be imperative to your financial well-being during retirement. But in order to do so, you'll first need to understand the nitty gritty of how your benefit is calculated, as well as comprehend just how important your claiming age can be. This can make all the difference in determining whether an early (age 62), middle-ground (age 67), or late (age 70) Social Security retired-worker benefit claim makes the most sense for your situation.
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These are the four building blocks of your Social Security check
As I've pointed out in the past, not all aspects of Social Security are black-and-white. For instance, early filers can be penalized by the Social Security Administration (SSA), and some beneficiaries could be taxed on a portion of their payout at the federal level, as well as in 10 states.
But when it comes to calculating your monthly Social Security check, the four building blocks used by the SSA are crystal clear:
- Work history.
- Earnings history.
- Full retirement age.
- Claiming age.
The first two variables are linked at the hip. When calculating your monthly benefit, the SSA will account for your 35 highest-earning, inflation-adjusted years of earned income (wages and salary but not investment income). As a general rule, if you want a larger Social Security payout, you'll want to earn more, on average, during your decades in the labor force.
Just keep in mind that the SSA also penalizes those who don't work at least 35 years. For every year less of 35 worked, the SSA averages a $0 into their calculation.
The third factor is the one that none of us has any control over. Your full retirement age represents the age you become eligible to collect 100% of your monthly benefit, and it's entirely determined by your birth year. For most of today's workforce, the full retirement age is 67.
The fourth building block, and the one that can really shuffle the deck when it comes to monthly benefits and aggregate lifetime payouts, is your claiming age. Though eligible workers can begin taking their benefit as early as age 62, they're incentivized to be patient. For every year a worker waits to take their benefit, their payout can grow by as much as 8%, beginning at age 62 and continuing until age 70, 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% | 122.70% | 130.7% |
| 1956 | 73.3% | 78.3% | 84.4% | 91.1% | 97.8% | 105.3% | 113.3% | 121.30% | 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% | 118.70% | 126.7% |
| 1959 | 70.8% | 75.8% | 81.1% | 87.8% | 94.4% | 101.3% | 109.3% | 117.30% | 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, 67, or 70?
The table above makes abundantly clear just how much the payout pendulum can swing over the traditional claiming age range of 62 through 70.
It's also a reminder that there's always going to be some level of educated guesswork involved when claiming Social Security benefits. Without knowing our "expiration" date ahead of time, the best we can do is take into account important factors, such as financial needs, marital status, and personal health when making our claims decision.
Every age within the traditional claiming age range has its advantages and drawbacks. But few claiming ages are likely to be as popular moving forward as 62, 67, and 70. Let's take a closer look at the allure of each of these claiming ages, as well as their disadvantages.
- Age 62: There are two reasons retired workers are jumping at the idea of taking their payout at age 62. First, they're getting their hands on their payout without having to wait. Second, the 2023 Trustees Report estimated the Old-Age and Survivors Insurance Trust Fund (OASI) could exhaust its asset reserves by 2033, which would necessitate sweeping benefit cuts of up to 23% for retired workers and survivor recipients. Claiming early may be an attempt to front-run these benefit reductions. On the flipside, an age 62 claim can permanently reduce monthly payouts by 25% to 30%, depending on your birth year, and expose you to early-filer penalties, such as partial or full-benefit withholding by the SSA.
- Age 67: What makes 67 such an attractive claiming age is that it represents the full retirement age for anyone born in or after 1960 (i.e., much of today's labor force). This middle-ground approach allows workers to collect their full benefit while still being young enough to enjoy it. The downside of claiming at full retirement age is that you could be leaving a lot of Social Security income on the table if you live well into your 80s.
- Age 70: The advantage of waiting until age 70 to begin receiving your Social Security check is that you're guaranteed to maximize your monthly benefit. Age 70 claimants will receive 24% to 32% more per month than what they'd have taken home at their full retirement age, depending on their birth year. The worry with an age 70 claim is that you won't live long enough to also maximize your lifetime benefit, compared to an earlier claim.
The critical question is: Do one or more of these popular claiming ages give retired workers a higher probability of maximizing their lifetime income from Social Security? According to one comprehensive study, there's a clear answer.
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Statistically speaking, one claiming age is far-and-away more likely to maximize lifetime Social Security income
Five years ago, researchers at online-financial planning and wealth-management company United Income released a report ("The Retirement Solution Hiding in Plain Sight") that attempted to answer the age-old question of which age, if any, gives retired workers the best chance of maximizing their lifetime Social Security income.
Researchers used data from the University of Michigan's Health and Retirement Study to extrapolate the Social Security claims decisions of 20,000 retired workers to determine if they'd made an "optimal" choice. By "optimal," the study meant a decision that resulted in the individual collecting the highest lifetime income. Take note that bringing in the most lifetime income may not mean collecting the highest monthly payout.
It should come as no surprise that only 4% of the 20,000 claimants studied were able to maximize their lifetime payout. Without knowing our "departure" date ahead of time, there's no guarantee that we're going to optimize lifetime benefits.
But the bigger takeaway from United Income's analysis was just how far apart the actual claims curve was from the optimal claims curve. Whereas 79% of the 20,000 claimants began receiving their Social Security check at ages 62, 63, or 64, the overwhelming majority of optimal claims occurred at or after full retirement age.
For example, United Income's analysis showed that just 8% of combined claims at ages 62, 63, and 64 would have generated the maximum lifetime Social Security income. In fact, ages 62 through 65, just not in this listed order, offered the four lowest probabilities of optimized payouts.
By comparison, 57% (not a typo!) of claimants would have maximized their lifetime income if they'd claimed their payout at age 70. For what it's worth, age 67 had the second highest probability of optimized benefits for about 10% of claimants studied.
To be fair, this doesn't mean an age 70 claim works for everyone. There are going to be situations where an earlier claim makes perfect sense, such as for someone with one or more chronic health conditions whose life expectancy could be shortened.
But when examined on a broader scale, waiting is the path that provides future retirees with a substantially higher probability of maximizing their lifetime Social Security income.
