Almost all retired workers should claim Social Security after 65, and most should claim at age 70, if maximizing lifetime benefits is the goal.
In most years, about 10% of newly retired workers claim Social Security at age 70, the age at which their payout is largest. Meanwhile, about 25% of newly retired workers claim Social Security at age 62, the age at which their payout is smallest. People in the latter group often regret their decision.
Indeed, a study published by the National Bureau of Economic Research found that 23% of beneficiaries wish they had delayed Social Security. But future retirees can avoid that regret by making informed decisions. Read on to see how claiming age impacts Social Security payouts, and to learn which claiming age is statistically most likely to maximize lifetime benefits.
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How the Social Security Administration calculates benefits for retired workers
Workers are entitled to Social Security benefits at age 62. Their benefit is calculated based on lifetime earnings and claiming age. Specifically, the inflation-adjusted earnings from the 35 highest-paid years of a worker’s career are run through a formula to determine their primary insurance amount (PIA). The PIA is the benefit the worker will receive if they claim Social Security at full retirement age, which is 67 for anyone born in 1960 or later.
Workers who claim Social Security before full retirement age receive a reduced benefit, meaning they get less than 100% of their PIA. But workers who claim Social Security after full retirement age earn delayed retirement credits (until age 70) that increase their benefit, meaning they get more than 100% of their PIA. The reduction or credit depends on how many months early or late benefits begin, but the reduction is greatest at age 62 and the credit is greatest at age 70.
To quantify that, a worker born in 1960 or later will receive the smallest possible benefit (for their individual circumstances in relation to lifetime income) if they start Social Security at age 62. However, their benefit will be 24% larger if they claim at age 65, and 77% larger if they claim at age 70.
The best age to claim Social Security (to maximize lifetime benefits)
A recent study published by the National Bureau of Economic Research (and funded by the Federal Reserve Bank of Atlanta) examined how much lifetime Social Security income American workers leave behind by claiming benefits too early. The study concluded that “virtually all American workers aged 45 to 62 should wait beyond age 65 to collect. More than 90 percent should wait till age 70.”
The authors used the 2019 Federal Reserve Survey of Consumer Finances (SCF) as their study population. The SCF population was twice run through an analytics program that accounted for lifespan uncertainty, state and federal taxes, and various types of Social Security benefits, among other variables. The first pass established a pre-optimization baseline, and the second pass revealed the optimal claiming age, meaning the age at which lifetime benefits and discretionary spending power were maximized.
The chart below shows the percentage of workers aged 45 to 62 that would optimize lifetime Social Security benefits at different claiming ages.
|
Social Security Claiming Age |
Retired Workers Who Optimize Benefits |
|---|---|
|
62 |
0% |
|
63 to 65 |
0.6% |
|
66 to 69 |
7.8% |
|
70 |
91.6% |
Data source: David Altig, Laurence J. Kotlikoff, Victor Yifan Ye. How Much Lifetime Social Security Benefits Are American Leaving on the Table? National Bureau of Economic Research. November 2022.
As shown above, less than 1% of workers aged 45 to 62 would optimize lifetime benefits by starting Social Security at or before age 65. But more than 91% of workers would optimize their lifetime benefits by claiming at age 70. Put differently, essentially every American worker aged 45 to 62 should claim Social Security after age 65, and the vast majority should claim at age 70, if their goal is to maximize lifetime benefits.
Failure to optimize benefits can be quite costly in terms of lost income and discretionary spending power. The study concluded that the median American household (headed by a worker aged 45 to 62) would shortchange itself $221,722 in lifetime benefits by claiming Social Security before the optimal age. After taxes, that translates to a median loss of $182,370 in lifetime discretionary spending power.
As a caveat, the figures discussed above apply to individuals with a normal life expectancy. Anyone with a below-average life expectancy may do better to claim Social Security at the earliest opportunity, depending on the circumstances.