If I could tell all retirees one thing about Social Security, I would tell them to do this before you apply for benefits

Few retirement decisions have as lasting an impact as when you decide to claim Social Security. The decision permanently affects how much you get, so it’s not one you want to brush off as insignificant.

I recommend that retirees (or those approaching retirement) figure out their break-even age before applying for Social Security benefits. Your break-even age is when the total lifetime benefits from claiming at one age equal the total lifetime benefits from claiming at another age. This value can help put your claim decision into perspective.

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How your claiming age affects your monthly Social Security benefit

Your monthly Social Security benefit revolves around your Primary Insurance Amount (PIA), which is the monthly payment you would receive if you were to claim benefits at Full Retirement Age (FRA). Here are the FRAs based on birth years:

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Right now, most people applying for Social Security benefits will have an FRA of 67, so we’ll use that as the age when referring to FRA.

The earliest you can claim Social Security is 62, but claiming before FRA reduces your monthly benefit based on how far you are from FRA. If you are within 36 months of FRA, your benefit is reduced by 5/9 of 1% for each month you are earlier. Each additional month after 36 further reduces benefits by 5/12 of 1%. This means your monthly benefit is reduced by 20% if you claim at 64 and by 30% if you claim at 62.

Conversely, monthly benefits increase if you defer them beyond the FRA. Benefits don’t increase any more after age 70, so that’s essentially the oldest age someone should consider claiming benefits. After FRA, monthly benefits are increased by 2/3 of 1% for each month. That works out to 8% annually and a total increase of about 24% if you delay until age 70.

Why the break-even age is so important in social security

Deciding when to claim Social Security comes down to a trade-off: Do you want lower payments for a longer period of time or higher payments for a shorter period of time? There’s no sure or right answer, but your break-even age can help you decide what might make sense for you.

To see the break-even age in action, let’s say your monthly benefit at FRA (67) is $2,000. If you were debating between claiming at 62 and at 67, here’s how it would work:

In this scenario, your total lifetime benefits from claiming at 67 won’t exceed those from claiming at 62 until about 79. If you were debating between claiming at 67 and 70, here’s how it would work:

In this scenario, the breakeven age is 80 1/2. Until then, your lifetime benefits from claiming at age 67 are greater than if you had waited until age 70.

These are just two specific examples, but you can use breakeven age to compare any age. Works for 62 vs. 70, 66 vs. 68, 63 vs. 69, or whatever age you have in mind. All you have to do is multiply your monthly benefit by a different number of months to find the sweet spot between different ages.

Note that these calculations do not include the annual cost of living adjustment (or COLA) that the Social Security Administration makes to your benefits to account for inflation. But the comparisons remain valid.

Using break-even age to help make a claim decision

Once you know your breakeven age, you can weigh various factors such as health (family and personal history), current financial situation, retirement plans, and other sources of retirement income.

If Social Security is your only source of income and you need it to get by, your answer is essentially made for you: Claim it as soon as you need the money. However, people with other sources of income who may not rely on Social Security may find themselves waiting longer for the higher benefit available.

If you are in excellent health and have a family history of longevity, you may decide to defer benefits to maximize your lifetime benefits. If the opposite is true, you may decide that you want your benefits as soon as possible to take advantage of them.

Again, there is no “right” or “wrong” time to claim Social Security, just the time that works best for you. Use your breakeven age to nudge you toward a decision that fits your personal situation.