For most retirees, Social Security doesn't just provide a check they'll receive each month. Rather, this income serves as a much-needed financial foundation that allows seniors to meet their obligations.
According to an analysis from the Center on Budget and Policy Priorities, America's leading retirement program was responsible for pulling 22.7 million people above the federal poverty line in 2022, including 16.5 million adults aged 65 and over.
Furthermore, 23 years of annual surveys from national pollster Gallup have found that between 80% and 90% of retirees lean on their monthly Social Security check, in some capacity, to make ends meet.
These surveys and studies show just how important it is for current and future retirees to get as much as possible out of Social Security. But in order to maximize what you'll receive, you'll first need a solid understanding of how you're paid, how important claiming age can be, and what tools you have at your disposal to meaningfully increase your monthly payout -- I'm looking at you, baby boomers!
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Four "puzzle pieces" are arranged to calculate your monthly Social Security check
There's no debating that some aspects of Social Security can be confusing. But what isn't difficult to understand are the four puzzle pieces unique to you that the Social Security Administration (SSA) puts together to calculate your monthly check. These four elements are your:
- Earnings history
- Work history
- Full retirement age
- Claiming age
When determining your monthly Social Security benefit, the SSA will use your 35 highest-earning, inflation-adjusted years of earned income (wages and salary, but not investment income). This calculation accounts for your earnings history and work history over multiple decades. It also suggests that a higher average salary or wage should result in a larger monthly benefit during retirement.
But something you'll want to keep in mind is that for every year less than 35 worked, the SSA will average a $0 into your calculation, which'll ultimately drag down your monthly payout.
The third variable, your full retirement age, represents the age you'll receive 100% of your monthly benefit. Your full retirement age is determined by the year you're born, which for a majority of today's workforce (born in 1960 or later) is age 67.
The fourth puzzle piece, and the one that can really alter your monthly and lifetime payout trajectory from Social Security, is your claiming age. Eligible retired-worker beneficiaries can begin collecting their Social Security income as early as age 62. The catch is that there's a monetary incentive to exercise patience. For every year a worker waits to take their payout, beginning at age 62 and continuing through age 69, their benefit can grow by as much as 8%. You can see this "monetary incentive" in action 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.
Early filers are fighting an uphill battle
Based on data published in Social Security's Annual Statistical Supplement, 64% of all retired-worker beneficiaries in 2022 had some sort of reduction for early retirement. In other words, they chose to begin collecting their Social Security check prior to reaching their full retirement age.
In fact, two of the three most popular claiming ages in 2022 were guaranteed to result in a permanent monthly benefit reduction. More than a quarter (27.3%) of all new claimants began collecting their benefit as early as possible (age 62), with another 13.1% making their claim at age 65. Keep in mind that taking benefits at age 62 can result in a permanent monthly payout reduction ranging between 25% and 30%, depending on your birth year.
Additionally, taking your payout prior to reaching full retirement age means the possibility of being exposed to the retirement earnings test. This "test" allows the SSA to partially or fully withhold benefits from early filers if they earn above preset income thresholds.
To be fair, there can be valid and logical reasons to begin collecting your Social Security payout at an earlier age. For example, if you have one or more chronic health conditions that can shorten your lifespan, an earlier claim might give you a better chance to maximize what you'll receive in lifetime income from Social Security -- and lifetime maximization is far more important than the largest monthly payout.
But early claimants are truly fighting an uphill battle. A 2019 study from online financial planning company United Income found that few early filers made a choice that optimized their lifetime benefit collection from Social Security.
United Income extrapolated the claims of 20,000 retired workers using data from the University of Michigan's Health and Retirement Study. Though 79% of the claimants they looked at had taken their payout at ages 62 through 64, only 8% of the 20,000 retired workers studied would have generated the most lifetime income from this age range. The study ("The Retirement Solution Hiding in Plain Sight") overwhelmingly showed that patience is a virtue (for many) when it comes to claiming Social Security benefits.
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This under-the-radar Social Security mulligan can notably increase payouts for baby boomers
Newly retired baby boomers and those nearing retirement might be of the opinion that they're locked into their claiming decision, even if they regret taking their payout early. However, Social Security has a do-over clause -- albeit with three notable restrictions -- which has the potential to meaningfully increase what baby boomers can receive.
This "secret" clause that newly retired boomers and soon-to-be retirees should acquaint themselves with is SSA-521, which the SSA officially refers to as "Request for Withdrawal of Application." As the official document name implies, this would allow baby boomers to effectively undo their Social Security claim, with approval from the SSA. If your claim to undo benefits is approved, your payout will, once again, accrue by up to 8% annually until age 70.
As I alluded, SSA-521 can be particularly useful for retirees who regret collecting their benefit early. It can also be a godsend for those who land a well-paying job not long after initially collecting their payout. If a retired-worker beneficiary was forced to take their Social Security income because they couldn't find employment and then subsequently lands a job, SSA-521 can come in handy.
But as I pointed out, this Social Security mulligan comes with three limitations.
To begin with, you're going to need to pay back all the benefits you've received from Social Security. This can also apply to your spouse and/or children, who may have collected a payout based on your earnings history.
Second, SSA-521 is a one-shot affair. If you're approved by the SSA to undo your benefit claim, you won't be able to lean on this do-over clause again if you have doubts or regrets after your second claim.
The third restriction to SSA-521 is that requests to cancel or withdraw your application can only be made up to 12 months after your initial benefit claim. This is to say that if you've been collecting a payout for 15 months or three years, you can no longer undo your claim using SSA-521.
While SSA-521 won't be of use to all baby boomers, it's a fantastic tool to have in your back pocket if your financial situation changes or you're regretting an early claiming decision.
