Statistics say this is the best age to claim Social Security

If you want to know the best age to claim Social Security benefits, you need to predict one thing: life expectancy. As morbid as it is, if you know exactly when you’re going to die, you can determine the exact month you should claim benefits to maximize your lifetime income from the government program.

But it is difficult to make such a prediction accurately.

The best you can do is use statistics, which can provide an expected value of a decision, such as when to claim Social Security. Expected value maximization is a great starting point to base your decision on, but it shouldn’t be the only factor.

Here’s what the statistics say is the best age to claim Social Security.

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Data immersion

Social Security administrators produce a report on the health of the government program each year. A key piece of data that administrators use to determine the future of Social Security is the period life table. The period life table shows the estimated mortality experienced in a given year by age and sex.

The Social Security Administration publishes these tables for everyone to see. You can use this data to better understand the projected life expectancy of men and women and help determine the optimal age to claim Social Security.

Most people first become eligible to claim Social Security retirement benefits starting at age 62. While it makes sense to plan ahead, you won’t need to finalize your decision until age 62 at the earliest.

From the data, you can see that the life expectancy of a man who turns 62 in 2024 is about 21.5 years. A woman who turns 62 this year can expect to live another 24.5 years on average. Both will put an individual up to age 80, exceeding the typical “threshold age” for those who decide to delay until age 70 to claim Social Security.

Image source: Getty Images.

But a dollar in the distant future is not worth the same as a dollar today. There is an opportunity cost to delaying benefits and this should not be overlooked. Because Social Security is an inflation-protected asset, the closest investable analog to Social Security’s delay is TIPS. TIPS are inflation-protected bonds backed by the government. Long-term TIPS currently yield about 2% (plus inflation adjustments), so you can reduce your future Social Security payments by 2% to get a better idea of ​​whether the delay is worth it.

We built a model to discount the cash flows provided by Social Security based on that 2%, while also taking into account the likelihood of someone collecting their benefits given the period’s life tables. The resulting figures say the best age for a man turning 62 this year is 68 years and four months, while a woman turning 62 this year should wait until 69 and four months. If you don’t reduce at all, the optimal age for both rises to 70.

The best age to claim Social Security will increase over time

There are some important caveats to note in this model. These figures are for one cohort of seniors. Actuaries at the Social Security Administration expect life expectancy to improve over time. As such, young people should plan to claim even later than the ages above.

In addition, the TIPS yield can fluctuate based on Federal Reserve actions. Given that most people expect rate cuts in the near future, it might make sense to use a lower discount rate and err on the side of delaying longer to optimize cash flows.

In other words, the ages above are probably the earliest a person should consider Social Security benefits if they want to maximize their expected lifetime income from the program.

Important considerations and when to ignore statistics

The data above only looks at the impact of claiming age on individual Beneficiaries of social security. Things get much more complicated when you consider the dynamics of a couple’s claiming strategies, including spousal benefits and survivor benefits.

Because of survivor benefits, it usually makes sense for the higher-earning spouse to wait until age 70 to maximize his and the surviving spouse’s benefits. The lower-earning spouse who plans to claim spousal benefits should not delay full retirement age (when such benefits are maximum). In some cases, it may make sense for the lower-earning spouse to claim as early as possible, at age 62.

Furthermore, it is important to realize that the numbers above are based on averages. If you’re in above-average health—don’t smoke, exercise, have no major health problems, and see your doctor regularly for checkups—you can expect to live longer than average. As such, it makes sense to defer your benefits longer. On the other hand, if you are in poor health and have reason to expect your life expectancy to fall below average, you should apply earlier.

The most important consideration for anyone deciding when to apply for Social Security is personal circumstances. If you can afford to defer your benefits until age 70, that may be the best age you can claim. It provides additional insurance against longer than expected life. If you can’t afford to go a day past age 62 without additional income, then you should claim your benefits as soon as possible, regardless of what my model tells you.

Don’t let statistics alone dictate your Social Security claim strategy. Optimizing everything on a dime won’t necessarily give you the safest retirement.