The vast majority of retired workers depend on Social Security to some degree. However, a recent survey from Nationwide Retirement Institute suggests many Americans are confused about how claim age impacts benefits: 40% of participants incorrectly stated that benefits automatically increase after full retirement age (FRA), even if you've already claimed Social Security.
In truth, the decision to claim Social Security before FRA results in a permanent reduction, and the decision to claim after FRA results in a permanent increase. Workers can start Social Security as early as age 62, but they will receive the smallest possible benefit based on their lifetime income. Alternatively, workers can delay benefits until age 70, and they will receive the largest possible benefit based on their earnings history.
However, that raises an important question: If you want to maximize lifetime benefits, is it better to start Social Security early and receive more (but smaller) payments, or is it better to start Social Security later and receive fewer (but larger) payments? The National Bureau of Economic Research (NBER) published a study in 2022 that suggests most Americans make the wrong decision.
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Claiming Social Security benefits too early costs the median household about $182,000
In November 2022, the National Bureau of Economic Research (NBER) published a paper titled "How Much Lifetime Social Security Benefits Are Americans Leaving on the Table?"
The study gathered data from the Federal Reserve's Survey of Consumer Finances and ran the numbers through a program twice. The first pass established a baseline by estimating lifetime spending power based on current claiming patterns. The second pass optimized the variables by adjusting decisions to maximize benefits and lifetime spending power.
That strategy not only enabled the authors to identify the best age to start Social Security (i.e., the age that would maximize spending power) but also to quantify the financial impact. The study concluded that most people collect Social Security too early. Among households headed by workers aged 45 to 62, the median loss in lifetime spending power was estimated at $182,000 (in 2022 dollars) if current behavioral patterns persist.
Most retired workers will maximize benefits by claiming Social Security at age 70
In 2024, nearly one-quarter of new retired-worker beneficiaries claimed Social Security at age 62, and nearly half of them claimed Social Security before age 66. Those individuals have very little chance of maximizing their lifetime spending power.
Virtually all workers aged 45 to 62 should delay Social Security beyond age 65, and more than 90% should wait until age 70, according to the statistical analysis published by the NBER. Put differently, if the goal is to maximize spending power, almost everyone should claim Social Security after age 65, and the vast majority of people should wait until age 70.
As mentioned, among households headed by workers aged 45 to 62, failure to optimize Social Security results in an estimated median loss in lifetime spending power of $182,000 (in 2022 dollars).
Personal circumstances matter when claiming Social Security benefits
When to start Social Security is a choice best made with help from a financial advisor. To say one age is better than another is an oversimplification. In reality, the decision depends on personal circumstances and goals. For instance, the study I discussed assumes a typical lifespan, meaning the conclusion is irrelevant to anyone with a below-average life expectancy.
Additionally, the decision to maximize Social Security benefits often requires people to live below their means between retirement and the onset of Social Security, or else it forces them to delay retirement. Some people would happily exchange a percentage of lifetime spending power for a consistent standard of living or the ability to retire early. That is a personal decision. There is no right or wrong answer.
However, if the goal is to maximize lifetime spending power, virtually everyone should claim Social Security after 65, and the vast majority of people should claim Social Security at age 70.
