Ask any self-described expert on Social Security when it's best to claim benefits, and they'll almost invariably tell you to wait as long as possible -- or, at least, to hold out until you're 66 years old, at which point you'll receive your entire primary insurance amount.
But while the rationale behind this advice is sound, a new study by the U.S. government also shows that it's completely out of touch with reality.
Why people theoretically should wait
The reason people should wait as long as possible before applying for Social Security benefits is simple: The longer you wait, the higher your monthly check will be. You can see this in the chart below, which illustrates the size of a hypothetical retiree's monthly benefits based on when he or she elects to receive them.
If you elect to receive benefits at the earliest possible time -- that is, in the first complete month after turning 62 -- then your monthly benefits will be 25% less than your primary insurance amount (i.e., what you're entitled to at full retirement, or 66).
Alternatively, if you wait until your 70th birthday, then delayed retirement credits will add an impressive 32%, or 8% for each year of deferment, to your monthly take.
Just to be clear, the Social Security Administration doesn't do this to punish people who choose to receive benefits early or even to persuade you to wait. It does so rather to ensure a fair distribution across claimants.
"The Social Security benefit formula adjusts monthly payments so that someone living to average life expectancy should receive about the same amount of benefits over their lifetime regardless of which age they claim," a recent report by the U.S. Government Accountability Office explained.
The biggest reason people don't wait
Despite the seemingly obvious advantage associated with waiting, most Americans choose not to do so.
According to the GAO, "62 remains the most prevalent age to claim Social Security benefits." And while the percentage of people doing so is on the decline, the most recent data shows that a full 32% of men and 38% of women begin receiving benefits in their first month of eligibility -- that is, the month after they turn 62. Meanwhile, only 13% of men and 18% of women apply for benefits at their full retirement age, and only 8% and 7%, respectively, wait until they're age 67 or older.
With this in mind, how is one to account for the gaping divide between theory and practice? In other words, why do so many experts claim that it's best to wait, while few Americans actually do?
The answer is that the age at which one chooses to receive benefits is often less of a choice than writers and analysts seem to assume. For many people, there's no other option.
"Several work-related factors may cause people to claim early and suggest they may face challenges in continuing to work until older ages," the GAO concluded. More specifically, "those who held a blue-collar job at age 60 through 62 were 55% more likely to claim early."
Think about that for a second. We're not talking about an insignificant margin here. That's a huge difference. What's behind the disparity?
Again, according to data analyzed by the government, "61% of those who held a blue-collar job at age 60 through 62 reported their job was physically demanding and/or involved heavy lifting most or all of the time."
In light of this, there are two points to keep in mind. In the first case, there's no denying the benefits associated with deferring Social Security benefits for as long as possible. But at the same time, there's also no denying the benefits associated with taking it early in order to avoid the physical wear and tear of a job that requires workers in their 60s to perform heavy lifting "most or all of the time."
In sum, if you're thinking about taking benefits early, rest assured that you're in good company, and there's no reason to second-guess yourself if you feel it's best for you.