As you near retirement, there are a few important decisions you have to make, especially financially. In addition to decisions such as your retirement withdrawal strategy and estate planning, you also need to begin thinking about when you want to claim Social Security.
The age at which you claim Social Security is an important decision because it permanently affects how much you receive in benefits, which could directly affect your retirement lifestyle.
To see the impact of different claiming decisions, let's compare them for ages 62, 67, and 70. Those are notable ages because it's the earliest you can claim Social Security, the full retirement age (FRA) for people born in 1960 or later, and the latest you can delay benefits and receive an additional monthly increase.
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How your claiming age affects your monthly benefit
The monthly amount you receive by claiming at your full retirement age is called your primary insurance amount (PIA). Using your PIA, Social Security calculates your monthly benefit based on when you claim relative to your FRA.
Claiming benefits before your FRA increases the monthly amount by 5/9 of 1% each month for the first 36 months. Each additional month will reduce benefits by 5/12 of 1%. Assuming your FRA is 67, this would result in a 30% decrease by claiming at 62.
Delaying benefits past your FRA increases them by 2/3 of 1% each month, working out to 8% annually. Again, assuming an FRA of 67, waiting to claim benefits until 70 would result in a 24% increase.
Here's how benefit amounts would be adjusted at different PIAs (the amount you'd receive by claiming at 67):
| Primary Insurance Amount | Benefit if Claimed at 62 | Benefit if Claimed at 70 |
|---|---|---|
| $1,500 | $1,050 | $1,860 |
| $2,000 | $1,400 | $2,480 |
| $2,500 | $1,750 | $3,100 |
Table by author.
As you can see, benefit amounts can vary widely depending on when you decide to claim. Depending on your PIA, the differences can be up to $1,000 or more.
Image source: The Motley Fool.
Who should claim benefits at 62?
Claiming as early as possible makes sense for people who are in immediate financial need. The higher monthly benefit may not be worth it if you have to struggle financially while waiting years to claim.
Even if you're stable financially, claiming benefits at 62 could be a good route if you want more financial flexibility. You may not need your Social Security check for bills, but you could use it to fund your retirement goals (such as travel or hobbies) or to invest and ideally begin generating income.
On a more practical note, claiming at 62 is a good option for those who may have personal or family health history concerns. If your life expectancy is shorter than average, then claim and enjoy the fruits of your labor while you can.
Who should claim benefits at 67?
Claiming at 67 (or at your FRA) is a good mix between keeping your PIA intact and doing so early enough to maximize your time and benefits.
For people who plan to work while receiving Social Security, claiming at FRA is beneficial because there is no longer an earnings limit, unlike for those who work while claiming Social Security early. You can work and earn as much as you'd like without having to worry about your benefits being temporarily reduced.
Who should claim benefits at 70?
Delaying benefits until 70 and receiving the maximum increase sounds enticing, but it's not for everyone.
For the millions of people who will rely on Social Security for a large portion of their retirement income, waiting until 70 may not be feasible. However, if you can reasonably survive via other retirement income sources, then the delay could be worthwhile.
One big question you have to ask yourself before delaying benefits until 70 is what your life expectancy reasonably looks like. You may enjoy the larger benefit, but your lifetime benefits from claiming early will still be greater until you hit your 80s.
There's no decision that fits every person
When you decide to claim Social Security should be a multifaceted decision that considers many aspects of your life. You should consider your health (both personal and family), financial situation, break-even age, and other long-term retirement goals.
Although people can recommend when to claim based on general rules of thumb, the final decision should align with your personal situation.
