Is it better to collect Social Security at 62, 65 or 70? A thorough study provides a concise answer.

For most Americans, Social Security is more than a check. It’s a financial foundation that many retirees would struggle to live without.

An analysis by the Center on Budget and Policy Priorities found that Social Security lifted 22.7 million people above the federal poverty line in 2022, 16.5 million of whom were adults age 65 and older. The mere fact that Social Security exists and provides a guaranteed monthly benefit to eligible retirees has reduced the poverty rate among seniors age 65 and older from about 38.7 percent without the program to 10.2 percent with it.

For most future retirees, maximizing what they will receive from Social Security is imperative. But to do this, they will first need to understand the basics of how their monthly benefit is calculated, as well as gain insight into the importance of claiming age. Collecting benefits early (age 62), in middle age (65), or at the end of the traditional claiming age (age 70) can have a multitude of advantages and disadvantages.

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Four variables are used to calculate your monthly Social Security check

While not all aspects of Social Security are straightforward—for example, you might be surprised to learn that some of your benefits may be taxed federally as well as in nine states—the four variables of the Social Security Administration (SSA). ) uses to calculate the monthly check are easy to understand:

Neither of the first two variables can exist without the other. When determining how much you’ll get each month, the SSA takes into account your 35 years of highest earnings, adjusted for inflation. Note that this means salary and wages and excludes investment income.

The peculiarity of this calculation is that the SSA will penalize beneficiaries who do not have 35 years of skilled work. For each year less than 35 years worked, an average of $0 is calculated. In other words, if you want to maximize what you’ll get from America’s top retirement program, working 35 years, if not longer, is a must.

The third important factor is your full retirement age, which is the age at which you become eligible to receive 100% of your retirement benefit. Since your full retirement age is determined by the year you were born, this is the only variable you have no control over.

The fourth and final factor, and the one most responsible for variations in monthly and lifetime benefit collection, is your claim age. Although retired worker beneficiaries have the option of receiving their payout as early as age 62, there is a financial incentive to be patient. For each year a worker waits to claim Social Security benefits, beginning at age 62 and continuing through age 69, their monthly check can increase by up to 8 percent. You can see how this dynamic plays out in the table below.

Data source: Social Security Administration.

Collecting benefits at 62, 65 and 70 comes with well-defined advantages and disadvantages

In the traditional claim range of 62 to 70, each age offers its own unique but well-defined advantages and disadvantages.

But in the coming years, ages 62, 65 and 70 are likely to remain or become particularly popular for initial claims by retired workers. Let’s take a quick look at the advantages and disadvantages associated with each age.

Age 62: The simple reason collecting benefits at age 62 is so appealing — age 62 was the most popular claiming age in 2022 — is that you don’t have to wait to get your hands on the payout.

The other attraction of an age 62 claim is the possibility that the Old Age and Survivors Insurance Trust Fund (OASI) will exhaust its asset reserves by 2033. If OASI were to exhaust this excess capital raised at the outset, the reductions Benefit cuts of up to 21% may be required for retired and survivor beneficiaries. Early collection of benefits could be perceived as a way to anticipate any possible reduction in benefits.

The downside to an age 62 claim, as you may have noticed in the claim age table, is that monthly benefits are permanently reduced by 25% to 30%, depending on your year of birth.

In addition, early filers may be subject to the retirement income test, which allows the SSA to withhold some or all of your benefits based on your earned income.

Age 65: The beauty of the basic claims approach is the ability to minimize how much your monthly benefit will be permanently reduced if you wait just a few years. Depending on your birth year, collecting at age 65 would reduce your monthly benefit by 6.7% to 13.3%, which is, on paper, more palatable than a permanent 25% to 30% reduction in age 62 years.

It’s also worth adding that claimants aged 65 are still young enough to enjoy their monthly benefit. This is probably one of the reasons why age 65 was the third most popular claim age in 2022.

On the other hand, taking a middle ground approach risks leaving a lot of Social Security revenue on the table. For example, if you live to age 80, waiting would have resulted in a more consistent monthly benefit and substantial higher lifetime income.

Age 70: The undeniable advantage of an age 70 claim is getting the highest possible monthly benefit. Cashing in at the end of the traditional claim range means receiving 24% to 32% more per month (depending on your year of birth) than what you would have owed at full retirement age.

However, this approach requires patience. You’ll have to wait eight years from initial eligibility before you get a cent. Additionally, there is no guarantee that you will live long enough to maximize what you will receive from Social Security compared to an earlier claim age.

Now that you have a clearer picture of the pros and cons — both on a monthly and lifetime collection basis — of these claiming ages, let’s get back to the all-important topic at hand: Is it better to collect Social Security at 62 years old. , 65 or 70?

Although not an easy question to answer, a thorough study provides a concise solution.

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An age advocate stands head and shoulders above everyone else

One of the reasons that age is such a difficult subject to approach is that it is impossible to know in advance whether we have made the best possible decision. Since none of us know when we will die, there will always be some level of educated guesswork involved. This is why there is no such thing as a perfect plan for Social Security claims.

The other challenge is that we all go our own way. Your financial needs, access to retirement plans (individual retirement accounts, 401(k)s, and so on), tax implications, marital status, and personal health will be unique to you. That means you’ll need to weigh these variables personal and others we haven’t mentioned here when deciding what age makes the most sense to start collecting your retired worker benefit.

With these unknowns in mind, researchers at online financial planning and wealth management company United Income released a report five years ago (“The Retirement Solution Hiding in Plain Sight”) that extrapolated the claims of 20,000 retired workers using data from the University of Michigan. Health and Retirement Study. One of the goals was to see how many beneficiaries optimized (that is, maximized) their lifetime Social Security collection.

Given all the unique variables and challenges described above, it’s probably no shock that only 4 percent of the 20,000 retired workers studied optimized their lifetime Social Security payment.

However, the much larger conclusion was the mirror reversal between actual and optimal claims.

United Income notes that 79 percent of the workers it studied began collecting payments between ages 62 and 64. Unfortunately, only 8% of optimal claims occurred between the ages of 62 and 64. Ages 62 to 65 (not in that order) were the least likely to optimize lifetime benefit collection.

At the other end of the spectrum, collecting at age 70 would have maximized lifetime Social Security benefits for 57 percent of the 20,000 retirees analyzed.

These findings do not mean that there are no situations in which an earlier statement will not make sense. For example, if you have one or more chronic health conditions that could shorten your life expectancy, or if you are a lower-income spouse and want to generate income for the household, an earlier claim may be perfectly reasonable.

But when we look at a broader range of claims by retired workers, United Income’s data shows pretty conclusively that waiting often has its rewards.