Deciding when to start claiming Social Security benefits is one of the most important decisions in retirement. Unfortunately, there's no universal answer that's perfect for everyone. There are pros and cons to every option. To make the best decision for your financial plan, you have to consider all the trade-offs and go with whichever best suits your circumstances.
The following information should help you think about the merits and drawbacks of each option.
The basics
In general, the longer you wait to start claiming Social Security benefits, the higher your monthly payout will be. Full retirement age is 66 for people born between 1943 and 1954, but rises two months per year for those born between 1955 and 1959 and rises to 67 for people born in 1960 or later.
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Full retirement age refers to the age at which you'd receive your full benefit. You can elect to start claiming Social Security income as early as age 62, but you'd only receive 70% of the benefit. Conversely, you can increase monthly payments to 132% of the full benefit by delaying until age 70. There's currently no further increase to benefits beyond age 70.
The average monthly payout is just over $1,500 right now, but someone claiming at age 66 could receive more than $3,100 if they had high enough income throughout their life.
Doing some quick back-of-the envelope math, based on that average benefit of $1,500 at age 66, we can quantify the typical impact of accelerating or delaying the claim. If you turn on the income stream at 62, you'd only receive $1,050 each month. Waiting until 70 pushes that up to $1,980 each month. The table below shows the cumulative benefits claimed at different ages, based on starting Social Security at various points. It assumes $1,500 of monthly income at full retirement.
Total amounts received at various age based on claiming age
| Age | Claim at Age 62 | Claim at Age 66 | Claim at Age 67 | Claim at Age 70 |
|---|---|---|---|---|
| 65 | $50,400 | $0 | $0 | $0 |
| 70 | $113,400 | $90,000 | $77,760 | $23,760 |
| 75 | $176,400 | $180,000 | $174,960 | $142,560 |
| 80 | $239,400 | $270,000 | $272,160 | $261,360 |
| 85 | $302,400 | $360,000 | $369,360 | $380,160 |
Data source: Calculations by author.
Why you might want to claim before 67
Willfully reducing your monthly income might be a non-starter for many people. After all, you can nearly double your monthly benefit by waiting. If you're on the high end of the benefit scale, you'd reduce your annual income by $6,840 by taking benefits at 62 instead of 67. From that perspective, it doesn't make much sense to accept such a drastic cut in payments.
It's not always that simple, however. First and foremost, it takes a while for the higher payments to catch up with the amount you miss out on from not taking smaller payments early. If you first claim benefits at age 67 instead of 62, you wouldn't surpass the cumulative payouts of the earlier election until age 76. Those extra five years of monthly checks really add up. Even the one-year delay past age 66 takes 12 years to break even.
Social Security was ultimately put in place to provide guaranteed income to retirees. If you need income prior to 67, then that's exactly what the program is intended to do. Not everyone has the good fortune of maintaining high earned income at the tail end of their career. You might need extra cash flow to meet basic needs and lifestyle goals. Some retirees face higher healthcare expenses that aren't covered by Medicare, employer-provided health plans, or supplemental medical insurance. Social Security income can also help you delay cashing out assets in retirement accounts. Some people with family histories of limited longevity might also want to take as much income as early as possible.
Whatever the reason, there are certainly circumstances that make sense for claiming Social Security earlier than 67. Make sure you've considered these variables before making your decision.
Why you might want to claim after 67
The argument for delaying payments is relatively straightforward. You can significantly improve your monthly payouts if you wait longer. That's especially relevant for people who have more than enough cash flow to meet all of their needs and wants without Social Security benefits.
People who enjoy their work and remain gainfully employed into their late 60s are in a better position to delay benefits. Other people have guaranteed income from pensions or annuities, and they might be completely comfortable with that cash flow. Other people might have retirement investment accounts that are advantageous to spend down based on the specific economic conditions at the time. In some cases, maximizing lifetime income would require a household to delay Social Security benefits as long as possible.
Higher Social Security benefits are especially important for people who are worried about longevity risk. Outliving your savings is a serious concern, and it's a central focus of any good retirement plan. Healthy people with long-lived family members might need to plan for 30 years of retirement. Advances in nutrition and medical technology are helping people to live longer, but that also comes with increased costs. If you can responsibly hold out until age 70 to start claiming Social Security, you might find yourself in a much more comfortable position throughout your 80s.
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