One of the most important decisions you will make when retiring is When to claim Social Security.
Most retirees can start claiming monthly benefits starting at age 62, but waiting to claim will increase the check they receive each month from the government. Benefits usually max out at age 70.
That leaves retirees with a lot of options. Many financial decisions often benefit from following the wisdom of the crowd: Averages of the decisions and estimates of millions of people may provide a better guide to what to do than following the advice of any one person.
But following the average retiree’s claims strategy could end up costing you in the long run after retirement.
What is the average age at which retirees claim Social Security?
The average age at which retirees claim Social Security has risen steadily since the turn of the 21st century, due in large part to changes in the Social Security law.
In 1983, Congress passed new legislation to raise the full retirement age from 65 to 67 in two stages. The first stage was implemented in the early 2000s, eventually raising the full retirement age to 66 for workers born after 1937. The second stage is currently being implemented, gradually raising the retirement age to 67 for workers born after 1955. This transition will finish in 2027.
Full retirement age, which determines the age at which you become eligible for standard benefits, or basic insurance amounts, the nation’s average claiming age rose significantly in the decade between 2004 and 2014 as workers adapted to changes in the Social Security system. In 2004, the average retiree claimed benefits at 63 years and 4 months of age. Ten years later, the average has risen by about a year and is likely to rise further as Americans adjust to receiving full retirement benefits at age 67.
Currently, the average retiree claims benefits at age 65, according to the latest data provided by the Social Security Administration on new retirement benefits due in 2022.
The most common claiming ages are 62 (the first year of eligibility) and 66. Fewer than 10% wait until age 70 to receive their maximum monthly benefit.
The average benefit that new recipients will receive is:
In 2022, the average retirement benefit for new filers (not including conversions from disability) was $1,938.75, which, based on 2023 and 2024 cost-of-living adjustments (COLAs), would result in a 2024 benefit of $2,174.86.
But it’s worth pointing out that the average benefit was less for those who filed at age 65. The average 65-year-old who filed for benefits in 2022 received just $1,874.56 per month. There are a few explanations for this difference.
First, the increase in your monthly check up to full retirement age is less than the increase in your benefit you would get if you postponed beyond full retirement age: For each month you approach full retirement age, you’ll get an extra 5/12 of 1% to 5/9 of 1% of your full retirement benefit. If you wait beyond full retirement age, you’ll get 2/3 of 1% of your standard benefit for each month you postpone.
The second explanation is that low-income workers, on average, claim benefits earlier than higher-income workers: their base insurance amount is significantly lower than that of people who wait until age 70. Claiming early can make sense if your career is prematurely terminated or if you do not have enough personal retirement savings to survive without claiming Social Security early.
Should I claim at the average retirement age?
As mentioned above, the wisdom of the crowds can help guide you as you chart your own path. Filing at 65 makes intuitive sense for many people. That age has long been the standard retirement age (perhaps a holdover from the original Social Security Act), and it makes it easier to quit work because you become eligible for Medicare at that age.
But cold hard data and several large-scale studies suggest that claiming Social Security at 65 may be a mistake for many retirees.
If you want to maximize your lifetime benefits from Social Security, it’s best to wait until you’re 70 to file. CDC life expectancy data Studies have shown that the average person in their 60s will live long enough to receive more benefits over their lifetime if they wait to claim, so unless you have reason to expect to live shorter than average, delaying as long as possible will give you a better chance of receiving more benefits.
A 2019 United Income survey also showed that most retirees would maximize their assets by delaying filing until age 70. 57% of households would maximize their chances of being able to fund their retirement by delaying filing until age 70. In comparison, only 8% of households would benefit from filing before age 65.
Remember, retirement planning depends heavily on your personal circumstances. What works for one person may be a bad decision for another. There’s a limit to how much you can rely on the wisdom of crowds. You need to determine what’s best for you.
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Here’s the average age at which retirees claim Social Security and how much they’ll get in monthly benefits Originally published on The Motley Fool
