For an overwhelming majority of retirees, Social Security is more than just a monthly check they'll receive. It represents a financial foundation that would be challenging to live without.
In 2023, Social Security was responsible for pulling approximately 22 million people above the federal poverty line, some 16.3 million of which were adults aged 65 and over. This analysis from the Center on Budget and Policy Priorities also estimates the senior poverty rate would be nearly four times higher if Social Security didn't exist -- an estimated 37.3% without vs. 10.1% with Social Security income.
Getting as much as possible out of Social Security is going to be a necessity for most future retirees. But in order to do so, workers need to understand the ins and outs of how their benefit is calculated, as well as realize how important their initial collection age can be in swinging the monthly and lifetime payout pendulum.
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These four variables are used to calculate your monthly Social Security check
While some aspects of America's leading retirement program can be complicated, the four variables the Social Security Administration (SSA) relies on to calculate your monthly benefit are as straightforward as they come:
- Work history
- Earnings history
- Full retirement age
- Claiming age
The first two factors -- your work and earnings history -- are inseparable. To calculate what you'll receive monthly from Social Security, the SSA takes your 35 highest-earning, inflation-adjusted years into account. Keep in mind that "earnings history" refers to the wages and salary you've earned and doesn't include investment income.
The one quirk to the work and earnings history calculation is that, regardless of how much you earned, on average, each year, the SSA will penalize you if you have less than 35 years of qualified work history. Every less year less of 35 worked will result in a $0 being averaged into your calculation. Thus, your only chance to maximize what you'll receive is to have at least 35 years of qualified work history.
The third item, your full retirement age, is the only variable you have no control over. Your full retirement age represents the age you're eligible to collect 100% of your retired-worker benefit, and it's entirely determined by the year you're born. Anyone born in or after 1960 (i.e., the lion's share of today's labor force) has a full retirement age of 67.
The fourth variable, but the one with the greatest penchant for altering how much you'll receive monthly and/or during your lifetime, is your claiming age. Though retired-worker benefits can be collected as early as age 62, the SSA provides a financial incentive to be patient. For every year a worker waits to collect their payout, beginning at 62 and continuing until age 70, their payout can grow by as much as 8%. This dynamic between collecting early versus waiting can be seen in the following table:
| 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.
Statistically, one collection age is likeliest to maximize your Social Security lifetime payout
With a better understanding of which factors influence your monthly and lifetime Social Security payout, future retirees are in a better position to tackle one of life's hardest questions: Which age is the smartest to collect Social Security?
To preface this discussion, there is no one-size-fits-all answer or perfect blueprint for when to start collecting Social Security. Since none of us knows when we're going to die, our claiming decision is always going to involve some educated guesswork.
Furthermore, each of us walks a unique path in life, which means our financial needs, tax implications, marital status, personal health, and so on, are going to be different from everyone else's. This makes it practically impossible for a one-size-fits-all Social Security claiming blueprint to exist.
With this being said, a comprehensive study published six years ago by researchers at United Income uncovered one age within the traditional claiming range of 62 to 70 that's been statistically superior than all others at maximizing what retirees will receive from Social Security.
In The Retirement Solution Hiding in Plain Sight, United Income leaned on data from the University of Michigan's Health and Retirement Study to extrapolate the claiming decisions of 20,000 retired workers. Researchers aimed to see which, if any, claiming ages optimized Social Security benefits. In this sense, "optimize" refers to the age that maximized lifetime (keyword!) benefits.
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Although researchers found that only 4% of the 20,000 retired workers studied had optimized their benefit, this wasn't the key takeaway from United Income's analysis. Rather, it was the almost perfect inversion between actual and optimal claims.
For example, a combined 79% of retired workers began collecting their payout at age 62, 63, or 64. However, United Income's extrapolation found that only 8% of retired workers would have maximized their lifetime payout from Social Security at these three ages, combined! The permanent monthly payout reduction of up to 30%, depending on a workers' birth year and initial collection age, make it unlikely that most early filers will maximize lifetime income collected from the program.
On the other end of the spectrum, only a small percentage of the 20,000 retired workers chose to initially collect their Social Security check at age 70. However, United Income found that 57% of these 20,000 retired workers would have maximized what they received by waiting and initially collecting at the latest possible age in the traditional claiming range. No other initial collection age was remotely close, in terms of the probability of maximizing lifetime income from Social Security.
Keep in mind this doesn't mean every future retiree is going to benefit from waiting to collect their Social Security payout until age 70. There remain perfectly viable reasons for early claims, such as having one or more chronic illnesses that can shorten your lifespan.
But this analysis does strongly imply that 70 is the smartest age for initial Social Security collection for a majority of future retired workers.
