One of the key choices you’ll face regarding Social Security is when to start receiving benefits. If you opt for early claiming, you’ll get more frequent payments but at a lower amount. Conversely, waiting to claim—while resulting in fewer payments over time—can boost your overall financial gains.
Let’s explore how this choice impacts your retirement income.
Social Security Basics
Each individual has a designated “full retirement age” at which they can start getting pension benefits. For those born after 1960, this age is 67.
You can begin receiving benefits at 62 or postpone until you reach 70, as delaying past that age won’t yield additional benefits.
The following table outlines the percentage of full benefits available at different starting ages.
Starting Age: | Full Retirement Age 66 | Full Retirement Age 67 |
|---|---|---|
62 | 75% | 70% |
63 | 80% | 75% |
64 | 86.7% | 80% |
65 | 93.3% | 86.7% |
66 | 100% | 93.3% |
67 | 108% | 100% |
68 | 116% | 108% |
69 | 124% | 116% |
70 | 132% | 124% |
As of April, the average monthly Social Security retirement benefit was approximately $2,081, totaling around $25,000 a year. While this isn’t a vast sum, if you earn above average, your Social Security benefits could be higher, up to a limit. (There are also strategies to enhance benefits, particularly if you’re still employed.)
Implications of Claiming at Age 62
How does starting benefits at age 62 impact your lifetime earnings? For instance, if your full benefit—what you would receive by claiming at 67—was $3,000 monthly, starting at 62 would drop that to $2,100.
If you live to be 85 years old and ignore Social Security’s occasional cost of living adjustments (COLA) for now, beginning with $2,100 monthly would yield 23 years of benefits amounting to $579,600. On the flip side, starting at 67 with $3,000 monthly would total $648,000 over 18 years. Yes, you’d get more, but it’s not like an overwhelming difference.
Interestingly, Social Security is structured so that if you have an average lifespan, the total benefits don’t drastically change, regardless of when you choose to claim.
Determining When to Claim Benefits
Individuals who anticipate a shorter lifespan might benefit from claiming early. Still, various studies suggest delaying benefits until age 70 is generally advisable.
A 2022 report from the National Bureau of Economic Research indicates:
Almost all U.S. workers aged 45 to 62 will need to wait past age 65 to start collecting benefits. Over 90% are recommended to hold off until age 70, yet only about 10.2% actually do. The estimated median loss in household discretionary spending for this demographic is around $182,370.
And don’t overlook those COLAs. Even if you start off with smaller benefits, they can help you stay ahead of inflation to some degree. But the more you maximize your benefits, the better you’ll be able to leverage your COLA.
