Few retirement decisions have as lasting an impact as when you decide to claim Social Security. The decision permanently affects how much you receive, so it's not one you want to gloss over as insignificant.
I recommend that retirees (or those approaching retirement) figure out their break-even age before claiming Social Security benefits. Your break-even age is when the total lifetime benefits from claiming at one age equal the total lifetime benefits from claiming at another age. This metric can help put your claiming decision into perspective.
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How your claiming age affects your monthly Social Security benefit
Your monthly Social Security benefit revolves around your primary insurance amount (PIA), which is the monthly payout you'd receive if you claimed benefits at your full retirement age (FRA). Here are FRAs based on birth years:
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At this point, most people claiming Social Security benefits will have an FRA of 67, so we'll use that as the age when referring to the FRA.
The earliest you can claim Social Security is 62, but claiming before your FRA reduces your monthly benefit based on how far away you are from your FRA. If you're within 36 months of your FRA, your benefit is reduced by 5/9 of 1% each month you're early. Each additional month after 36 further reduces benefits by 5/12 of 1%. This works out to your monthly benefit being reduced by 20% if you claim at 64 and 30% if you claim at 62.
Conversely, monthly benefits are increased if you delay them past your FRA. Benefits don't increase any further after 70, so that's essentially the oldest age anyone should consider claiming benefits. After your FRA, monthly benefits are increased by 2/3 of 1% for each month. This works out to 8% annually and around a 24% total increase if you delay until 70.
Why your break-even age is so important in Social Security
Deciding when to claim Social Security comes down to a trade-off: Do you want smaller payments for a longer amount of time or larger payments for a shorter amount of time? There's no surefire or right answer, but your break-even age can help you decide what may make sense for you.
To see the break-even age in action, let's assume your monthly benefit at your FRA (67) is $2,000. If you were debating between claiming at 62 and 67, here's how it would work out:
| Monthly Benefit | Total Benefits by Age 70 | Total Benefits by Age 79 |
|---|---|---|
| $1,400 (starting at age 62) | $218,400 | $285,600 |
| $2,000 (starting at age 67) | $192,000 | $288,000 |
In this scenario, your total lifetime benefits from claiming at 67 won't surpass those from claiming at 62 until right around 79. If you were debating between claiming at 67 and 70, here's how it would work out:
| Monthly Benefit | Total Benefits by Age 79 | Total Benefits by Age 80 1/2 |
|---|---|---|
| $2,000 (starting at age 67) | $288,000 | $372,000 |
| $2,480 (starting at age 70) | $267,840 | $372,000 |
In this scenario, your break-even age is 80 1/2. Before then, your lifetime benefits from claiming at 67 are higher than had you waited until 70.
These are just two specific examples, but you can use break-even age to compare any ages. It works for 62 versus 70, 66 versus 68, 63 versus 69, or any ages you're considering. All you need to do is multiply your monthly benefit by a different number of months to find the sweet spot between different ages.
Note that these calculations don't include the annual cost-of-living adjustment (or COLA) that the Social Security Administration makes to your benefits to account for inflation. But the comparisons remain valid.
Using your break-even age to help make a claiming decision
Once you know your break-even age, you can weigh different factors, such as health (family and personal history), current financial situation, retirement plans, and other retirement income sources.
If Social Security is your only income source and you need it for your livelihood, your answer is essentially made for you: Claim as early as you need the money. However, people with other income sources who may not rely on Social Security may find waiting longer for the higher benefit feasible.
If you're in excellent health and have a family history of longevity, you may decide to delay benefits to maximize your lifetime benefits. If the opposite is true, you may decide you want your benefits as early as possible to take advantage of them.
Again, there is no "right" or "wrong" time to claim Social Security, just the time that works best for you. Use your break-even age to help push you toward a decision that fits your personal situation.
