For most Americans, Social Security isn't just another check they'll receive during their golden years. It represents a vital source of income that's necessary to make ends meet. After 23 years of annual surveys, national pollster Gallup has found that 80% to 90% of retirees lean on their monthly check from Social Security as either a "major" or "minor" source of income.
For the multiple generations of workers currently in the labor force, maximizing what you'll receive from Social Security is going to be a necessary goal.
But in order to optimize what you'll receive, you'll need to first understand the inner workings of how your Social Security benefit is calculated, and recognize how important your claiming age can be when it comes to monthly and lifetime benefit collection. Claiming age, and a few other personal factors, can make all the difference in deciding whether an early claim, such as age 62, or a middle-ground approach, like an age 67 claim, makes the most sense.
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The four pillars used to calculate your Social Security check
Although certain aspects of Social Security can be confusing, and social media isn't always the most helpful in getting to the right answer, the four pillars relied on by the Social Security Administration (SSA) to calculate your monthly Social Security check are straightforward and easy to understand:
- Earnings history
- Work history
- Full retirement age
- Claiming age
Your earnings history and work history are two factors that are linked together. 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). This means if you earn more, on average, throughout your lifetime, there's a good chance you'll receive a higher Social Security check during retirement.
On the other hand, the SSA is going to penalize eligible beneficiaries who work less than 35 years. For every year less than 35 worked, the SSA will average a $0 into your calculation, which reduces your monthly payout.
The third factor, your full retirement age, represents the age you become eligible to receive 100% of your retirement benefit. It's the only one of the four pillars you can't control, and is entirely determined by the year you're born. Social Security's full retirement age has ranged between 65 and 67 since the program's inception.
Finally, there's the all-important variable: Your claiming age. Although Social Security retired-worker benefits can begin as early as age 62, there's a financial dangling carrot incentivizing retirees to be patient. Beginning at age 62 and continuing until age 70, retired workers who wait to claim their payout will see their benefit grow by up to 8% annually, 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.
Collecting benefits at 62 or 67 comes with well-defined advantages and drawbacks
As you can see in the table above, there are massive potential monthly benefit swings within the traditional claiming age range of 62 through 70.
Although every single age in this claiming range has its own unique set of positives and negatives, ages 62 and 67, which I referenced earlier, are likely to be some of the most popular choices for future generations of retirees. Let's take a closer look at the advantages and drawbacks of these two claiming ages.
Age 62: The primary lure of an age 62 claim is the luxury of not having to wait to get your hands on your retired-worker benefit.
Claiming at an early age might also be especially attractive to workers concerned about the possibility of benefit cuts in the not-too-distant future. The Old-Age Survivors and Insurance Trust Fund (OASI), which is responsible for doling out benefits to nearly 51 million retired workers and 5.8 million survivor beneficiaries each month, is forecast to exhaust its asset reserves by 2033, based on the latest Board of Trustees Report. If this happens, sweeping benefit cuts of up to 21% may be necessary to sustain payouts through 2098 without the need for any further reductions.
On the other hand, collecting benefits at age 62 can lead to a 25% to 30% permanent monthly reduction in your Social Security check, depending on your birth year, compared to what you would have received at full retirement age.
Additionally, taking benefits prior to reaching your full retirement age can expose you to early filer penalties, such as the partial or full withholding of your benefits by the SSA if you earn above preset income thresholds.
Age 67: The middle-ground approach of taking benefits at age 67 is going to rapidly increase in popularity for two reasons. To begin with, age 67 represents the full retirement age for anyone born in or after 1960, which accounts for most of today's workforce. Future retirees wanting to collect 100% of their monthly payout will be encouraged to wait five years, post-eligibility, before collecting their benefit.
The other reason age 67 should gain in popularity is because of Social Security's disability conversion. When people receiving Social Security disability payments (SSDI) hit their full retirement age, Social Security automatically converts them to retired-worker benefits.
The possible downside to collecting benefits at age 67 is that you run the risk of living well into your 80s and leaving a lot of extra Social Security income on the table.
With a better understanding of the factors that can influence Social Security claiming ages, let's return to the all-important question at hand: Is it better to collect Social Security at 62 or 67?
To answer this question, I'll turn to a large-scale study released five years ago.
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Patience can (often) pay off handsomely when it comes to maximizing your Social Security income
Before digging into the study, let me preface this discussion with a few key disclaimers. First, since none of us knows our "departure" date ahead of time, there's always going to be some degree of educated guesswork involved when deciding which age makes sense to begin collecting Social Security benefits.
Additionally, everyone walks their own unique path and will have financial variables, their marital status, and personal health needs to consider when claiming their payout. This is why there's no one-size-fits-all blueprint for collecting Social Security.
With this being said, researchers at United Income released an extensive study, "The Retirement Solution Hiding in Plain Sight," which examined the likelihood of certain claiming ages maximizing retired workers' lifetime benefit collection from Social Security. In total, 20,000 retired-worker claims were extrapolated using data from the University of Michigan's Health and Retirement Study.
The headline takeaway wasn't unexpected: Only 4% of the 20,000 claimants examined had optimized their Social Security benefit (chosen to collect benefits at the age that maximized their lifetime payout). Without knowing your date of passing ahead of time, there's never any guarantee that you've made the best choice.
But what might surprise the generations of eligible retired-worker beneficiaries to come is that actual claims and extrapolated optimal claiming ages were more or less inverses of one another. Whereas 79% of the retired workers examined began collecting Social Security from ages 62 through 64, only around 8% of beneficiaries in this claiming age range would have optimized their lifetime benefits.
In comparison, United Income's research showed that 57% of the workers examined would have maximized their lifetime benefits if they had begun collecting Social Security at age 70. In terms of lifetime benefit optimization, age 67 was the second highest at around 10%. Between ages 62 and 67, the latter gave retired workers a higher statistical probability of maximizing their lifetime income from Social Security.
To reemphasize the point I made earlier, this doesn't mean everyone is going to be better off if they take their Social Security payout at ages 70 or 67. Variables that can include the ability to draw down on financial retirement plans (401(k)s and IRAs) and personal health should influence your decision.
But when this group of 20,000 retired workers is examined as a whole, it shows that patience is rewarded more often than not when it comes to collecting Social Security income.
