Understanding how Social Security benefits differ depending on when retirees claim is critical for effective retirement planning. The age at which one begins to collect benefits can substantially alter the monthly payout, shaping financial security in later years.
For many Americans, Social Security remains a vital source of income during retirement. According to recent data, nearly 80% to 90% of retirees depend on these payments to meet daily expenses.
Yet, the decision of when to claim benefits involves trade-offs: earlier collection leads to lower monthly amounts, while delaying benefits increases payouts but requires patience and longevity.
The Mechanics Behind Social Security Benefit Calculations and Claiming Age
The Social Security Administration (SSA) calculates monthly retirement benefits based on four factors: work history, earnings history, full retirement age, and claiming age.
Work and earnings history reflect an individual’s 35 highest-earning years, adjusted for inflation, which largely determine the benefit amount. The full retirement age, set by birth year, indicates when one can claim 100% of their entitled benefit without reductions.
Claiming age plays a pivotal role in adjusting monthly payments. Retirees can start receiving benefits as early as 62, but with a permanent reduction of approximately 25% to 30% compared to full retirement age benefits.
Conversely, delaying benefits beyond full retirement age increases the monthly amount by up to 8% annually until age 70. For those born between 1943 and 1954, for example, benefits at age 62 equal 75% of full retirement age benefits, rising to 132% by age 70, according to SSA figures.
Average Benefits at Ages 62, 67, and 70 Highlight Trade-Offs for Retirees
Data from the SSA Office of the Actuary show clear differences in average monthly benefits depending on claiming age. In December 2023, around 590,000 retirees aged 62 received an average payment of $1,298.26, while 2.92 million aged 67 collected an average of $1,883.50.
At age 70, approximately 3.01 million beneficiaries received $2,037.54 on average. This means that those claiming at 70 received about 57% more per month than the earliest filers at 62.
Research underlines the financial advantages of delaying claims where possible. A 2019 study analysing 20,000 retired workers found that only 4% claimed benefits optimally to maximise lifetime income, with just 8% of claims made between ages 62 and 64 proving optimal. .
Meanwhile, 57% of those waiting until age 70 maximised their lifetime Social Security income. However, individual circumstances such as health, financial needs, and personal situations may justify earlier claims.
The decision about when to claim Social Security remains highly individual, but for many, waiting longer offers significant financial benefits. Understanding the trade-offs and averages can help retirees make informed choices about their Social Security benefits.
