An analysis of 20,000 retired-worker claims finds that one claiming age truly is a step above the others.
For most retirees, Social Security plays an important role in building their financial foundation. An analysis from the Center on Budget and Policy Priorities finds that Social Security payouts have reduced the poverty rate for adults aged 65 and above to 10.2% from an estimated 38.7% if the program didn't exist.
Additionally, more than two decades of annual surveys from pollster Gallup have shown that as much as 90% of then-current retirees require their monthly Social Security check to cover at least some portion of their expenses.
For some future retirees, maximizing their Social Security benefit won't be a luxury -- it'll be a necessity. But in order to get as much as possible out of Social Security, you'll first need to understand the ins and outs of how benefits are calculated, and come to terms with how important your claiming age can be. This can make all the difference in deciding whether it's better to take Social Security at age 62 (an early claim), age 67 (a middle-ground claim), or age 70 (a later claim).
The nuts and bolts of how your Social Security check is calculated
The good news is you don't need a calculus degree to understand how the Social Security Administration (SSA) calculates your monthly check. That's because the four factors utilized by the SSA are straightforward.
- Work history
- Earnings history
- Full retirement age
- Claiming age
The first two components are tightly linked to one another. When determining your monthly Social Security benefit, the SSA will account for your 35 highest-earning, inflation-adjusted years. Keep in mind that this is based on earned income (wages and salary) and doesn't include any investment income you may have received.
The caveat to the above is that the SSA will also penalize you if you don't work at least 35 years. For every year less of 35 worked, the SSA averages a $0 into your calculation. If you have any hope of maximizing what you'll receive from Social Security, you'll want to spend 35 (or more) years in the labor force.
The third factor is your full retirement age, which is entirely determined by your birth year. Your full retirement age represents the age you become eligible to receive your full monthly retired-worker benefit.
Lastly, your claiming age is of the utmost importance. Although eligible retired workers can begin receiving their Social Security benefit as early as age 62, there's a monetary incentive to be patient. For every year a worker waits to claim their payout, their benefit can grow by up to 8%, beginning at age 62 and continuing until age 70, as shown in the table below.
| 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.
Ages 62, 67, and 70 each have clear advantages and drawbacks
As you can see, there are some wide monthly payout variances based on the age you choose to receive your Social Security benefit.
Within the traditional claiming age range of 62 through 70, every age offers its own unique pros and cons. But within this range are three ages -- 62, 67, and 70 -- which are expected to be especially popular choices for future generations of retired workers. Let's have a closer look at the advantages and drawbacks associated with Social Security claims at these respective ages.
- Age 62: The reason the earliest claiming age is so attractive is because beneficiaries don't have to wait to get their hands on their payout. Additionally, the Old Age and Survivors Insurance Trust Fund (OASI) may exhaust its asset reserves in as little as nine years. Should this happen, sweeping benefit cuts of up to 21% may be necessary. Claiming at age 62 can potentially front-run these reductions by a few years. On the downside, age 62 recipients could see their monthly benefit permanently reduced by up to 30%, and they may be exposed to the retirement earnings test, which allows the SSA to withhold some or all of their payout.
- Age 67: The lure of an age 67 claim is not having to worry about benefit reductions. This middle-ground claim represents the full retirement age for anyone born in or after 1960. In other words, age 67 claimants are guaranteed their full benefit and are still young enough to enjoy it. On the other hand, if you live well into your 80s, an age 67 claim will result in a sizable amount of Social Security income being left on the table.
- Age 70: The dangling carrot of an age 70 claim is the ability to maximize your monthly benefit. Depending on your birth year, age 70 claimants will see their payout rise by 24% to 32% above what they would have received at full retirement age. The potential drawback of being patient is that there's no guarantee you'll live long enough to maximize what you'll receive during your lifetime.
Now that you have a better understanding of why these three ages are bound to be popular among future retirees, let's circle back to the question at hand: Is it better to take Social Security at 62, 67, or 70?
A comprehensive study on claiming ages that was released five years ago has the clear answer to this question.
Image source: Getty Images.
One claiming age truly is better than the rest
In 2019, researchers at United Income published a report ("The Retirement Solution Hiding in Plain Sight") that compared the actual claiming ages of 20,000 retired workers to their extrapolated "optimal" claiming age. By "optimal," United Income is referring to the claiming age that would have maximized the lifetime income they generated from Social Security. Note, the highest monthly income and lifetime income may not be synonymous with one another.
Using data from the University of Michigan's Health and Retirement Study, researchers determined that only 4% of the 20,000 workers examined had maximized the benefits they received from Social Security. Since none of us knows our "departure date" ahead of time, this isn't a particularly surprising conclusion.
But the one finding that did stand out was the plain-as-day inversion between actual and optimal claims within the traditional claiming age range. United Income notes that while 79% of actual claims were made from ages 62 through 64, only 8% of optimal claims occurred within this range. In fact, ages 62 through 65 (not in this order) were the four ages that were least likely to maximize lifetime Social Security benefits.
On the other side of the coin, age 70 was the runaway winner. Approximately 57% of the 20,000 retired workers studied would have maximized the lifetime benefits they collected had they taken their payout at age 70. For what it's worth, age 67 was the second-best claiming age -- around 10% of claimants would have maximized their lifetime payout with this middle-ground approach.
While age 70 was truly at the head of the class among claiming ages, it doesn't mean waiting will work for everyone. For example, a person with one or more chronic health conditions that could shorten their life expectancy may benefit from taking their payout earlier. Likewise, it might make sense for a lower-earning spouse to claim their benefit earlier so as to allow the household breadwinner's payout to grow over time.
Everyone's combination of financial needs, marital status, and personal health is going to be different, which is why there's no one-size-fits-all approach to claiming Social Security benefits.
However, the data is pretty clear that waiting has its financial advantages. Future retirees who find themselves in good health would be wise to consider a later claim.
