In April, around 50.9 million retired workers received an average Social Security benefit of $1,915.26 per month. While this sum may seem modest, Social Security benefits have been crucial for the economic security of seniors over many years.
For 23 years, Gallup, a prominent national polling organization, has polled retirees to assess how dependent they are on the income provided by the nation’s leading retirement program. Every year, at least 80% of those surveyed stated that this income constituted either a “significant” or an “insignificant,” yet still necessary, part of their earnings. By 2024, just 11% of retirees reported not needing these funds at all.
Social Security payout
to make ends meet.
Securing as much as you can from Social Security will be crucial for upcoming beneficiaries. However, to optimize these benefits, future retirees must initially comprehend the intricacies behind how their payouts are determined.
Furthermore, they’ll need to
understand just how crucial declaring one’s age can be
It can significantly impact the decision of whether claiming at age 62, opting for a balanced strategy at age 66, or delaying until age 70 is the most prudent choice.
The calculation of your monthly Social Security benefit involves four key elements.
To avoid diving deep into complex equations (since who enjoys math when reading anyway?), the Social Security Administration (SSA) uses four key elements to determine your monthly payment from one of the nation’s foremost retirement programs. These four “factors” include:
- Earnings history
- Work history
- Full retirement age
- Claiming age
The initial two elements, namely your job experience and earning record, are inherently linked. In determining your monthly benefits, the Social Security Administration considers your top 35 years of inflation-adjusted high earnings. These calculations rely solely on money you’ve made through employment such as salaries and wages, excluding any income from investments.
Moreover, the SSA imposes penalties on beneficiaries who do not work for at least 35 years. For each year below the 35-year threshold, the SSA includes an additional $0 in your monthly benefit calculation.
The third factor, known as your full retirement age, indicates the age at which you can start receiving your complete retirement benefits. Since
It’s based on the year of birth.
It’s the sole element where you have zero influence.
The fourth factor the SSA considers when determining your monthly Social Security payment, which I have previously suggested is crucial, is your age at claim. Although retirees become eligible to receive benefits as early as 62 years old, the Social Security system
offers financial motivation to those who choose to wait
For each year a worker delays receiving their benefits from the age of 62 up to and including age 70, those benefits may increase by up to 8% annually. This progression is illustrated in the following table.
|
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% |
Source of data: Social Security Administration.
Gathering benefits at ages 62, 66, and 70 has distinct advantages and disadvantages that are quite evident.
Within the conventional claiming-age window, ranging from 62 to 70, each year comes with distinct perks and pitfalls. Nonetheless, ages 62, 66, and 70 may continue to be favored choices or see an uptick in preference moving forward. We’ll delve into the specific advantages and disadvantages individuals could anticipate should they opt for benefit collection at those particular points.
Age 62:
In 2022,
The year 1962 saw the highest prevalence as the typical retirement age for retirees.
To start getting their Social Security payment. The reasoning behind this is quite straightforward: retirees prefer not to delay in obtaining their benefits.
One of the reasons why taking Social Security at the earliest eligible age remains common is due to projections indicating that the Old-Age and Survivor Insurance Trust Fund (OASI), tasked with providing benefits to retirees and survivors, could exhaust its funds as early as 2033. Should this occur,
extensive reductions in benefits of up to 21% could be implemented next
Early claimants might be trying to get ahead before any possible decrease in benefits occurs.
Nevertheless, filing for benefits at age 62 will lead to a permanent decrease in your monthly payments by 25% to 30%, contingent upon the year you were born.
Early applicants may still fall under the retirement earnings test.
This enables the SSA to withhold part or all of your benefit based on your income level.
Age 66:
Notably, 66 was the second most prevalent claiming age in 2022. The appeal of adopting a balanced strategy lies in itsmiddlewareapproach.
reduces or completely removes any decrease in the monthly payment
, yet it still enables retirees to withdraw their payouts while they are young enough to appreciate them.
However, there might be a drawback to initiating your benefits within what’s considered the typical claiming period. Should you reach your mid-80s, you could end up foregoing quite a substantial portion of your Social Security earnings.
Age 70:
The most recent trend shows an increasing preference for collecting benefits at the latest possible age within the conventional claiming timeframe. Even though this means waiting an additional eight years after becoming initially eligible, opting for an age 70 claim can be advantageous.
you will get the maximum possible monthly payment
— ranging from 24% to 32% higher than what you would have earned monthly at full retirement age, based on your birth year.
Additionally, the retirement earnings test ceases to apply when you reach your full retirement age. Therefore, individuals who claim benefits at age 70 do not need to concern themselves with the Social Security Administration reducing their retired-worker benefit.
The downside of claiming at age 70 is the risk that you might not live long enough to fully benefit from it.
lifetime
benefit collection.
Patience often comes with its benefits.
Having gained a comprehensive view of the benefits associated with each claiming age, we can now revisit the crucial question: Should one opt for Social Security at 62, 66, or wait until 70?
The genuine answer is that we don’t concretely know. Since none of us knows ahead of time when we’re going to “depart,” there’s
There will always be a certain level of informed speculation involved.
In our claims procedure, everyone follows their own distinct journey. This requires considering various elements significant to us individually, including financial requirements, availability of pension schemes, marital situation, tax implications, and naturally, individual health circumstances.
Considering this, researchers at United Income performed an extensive statistical analysis five years ago on optimal Social Security filing times, utilizing information extracted from the University of Michigan’s Health and Retirement Study. The objective was to identify the claiming ages that would maximize benefits.
lifetime
benefit accumulation (with particular focus on “lifetime”)
United Income analyzed the records of 20,000 retirees and found that merely 4% had selected an option that optimized their Social Security earnings. This lack of surprise stems from the uncertainties involved when deciding on Social Security benefits.
The surprising aspect was the difference between the claimed ages and the ideal claiming ages. Among the 20,000 retirees analyzed, 79% started receiving their Social Security benefits at age 62, 63, or 64.
Only 8% of claims reached the optimum level within this age group.
.
On the flip side, being patient paid off. Some
57% of the analyzed retired workers
They could have maximized their Social Security benefits by initially claiming them at age 70. Notably, age 66 stood as the midpoint for optimizing Social Security income, surpassing ages 62 to 65 yet falling short of ages 67 to 70.
This does not imply that there are no situations where claiming benefits sooner could be sensible. For example, a partner with lower earnings might decide to take their Social Security benefit early so as to let the payments for the primary earner within the family increase progressively. Similarly, someone suffering from one or multiple long-term illnesses that could reduce life expectancy might find advantage in filing for their benefits at an earlier stage.
However, when the perspective is broadened and the entire cohort of former retirees is analyzed collectively,
patience has turned out to be a more statistically astute decision
, quite frequently. This is an essential consideration for upcoming generations of retirees to bear in mind when making this crucial choice.
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