What’s the right age to claim Social Security? A Reddit user who has been considering this issue said recently that when you make this decision, you are playing in Las Vegas” against the government.
While it may seem like a strange metaphor, the original poster was trying to make the point that the government thinks it knows when someone will die and has used this information to create a system of early filing penalties and delayed retirement credits. The goal of this system is to try to make sure those who claim Social Security early get the same lifetime benefits as those who claim Social Security late. And, if you don’t die when the government thought you would, then you could either win or lose the game of getting more lifetime benefits, depending on when you claimed.
The Redditor is actually exactly right about this, and there are a few key things that you should consider as you decide what age you should start your benefits.
Here are the key factors to think about as you decide when to claim Social Security
The most important factor that should shape your Social Security claim is whether you think you will live long enough to break even if you delay. You can make an educated guess about whether or not that will happen by calculating your break-even point. Here’s how:
- Determine what your Social Security benefit will be at different claiming ages. For example, if your standard benefit is $1,900 and you are deciding between claiming at 62 or claiming at 70, you’d need to determine how much the $1,900 would be reduced or increased at each age. You can sign into your online Social Security account to see benefits at different ages, or you can do the math by subtacting 5/9 of 1% from your standard benefit for each of the first three months you claimed early before your full retirement age, subtracting an additional 5/12 of 1% for any month before that, or adding 2/3 of 1% for each month you delay your claim. In this case, a claim at 62 with an FRA of 67 would reduce your standard benefit by 30% to $1,330, while a delay to 70 would increase it by 24% to $2,356.
- Determine how much income you miss because of a delayed claim. If you’d have collected $1,330 starting at age 62, and instead you wait until 70, you’re passing up eight years of income. If you had received $1,330 per month for eight years, you’d have collected $127,680 in benefits over those eight years.
- Determine how much higher your benefit is due to delaying. If you delay your Social Security claim until 70 instead of claiming at 62, your benefit would be $1,026 higher. At a rate of $1,026 extra per month, it would take you 124.4 months to earn enough extra benefits due to the delay to make up for $127,680 in missed income.
Ultimately, the big question then becomes, do you think you are likely to live 124.4 months, or 10 years or so, beyond age 70 to collect enough benefits to make up for the missed income? If so, then a late claim is the better bet, and if not, then an earlier claim would make sense.
Other factors beyond the break-even calculation
Now, there are a few other factors to consider as well.
For one thing, if you are the higher earner, a delayed claim can increase survivor benefits. Studies have also shown that seven in 10 retirees end up with more lifetime income if they delay their claim, so this can help to guide your decision as well. Of course, on the flip side, you may be unable to afford to retire without claiming Social Security sooner than 70, and you may decide you’d rather accept less monthly and lifetime income if it means you get to retire earlier.
However, the key is to do this break-even calculation and make an informed choice. An experienced financial advisor can also help you to consider the issues relevant to your situation to make a decision about what claiming age is best. Since this is an important choice, getting this professional advice may be well worth it.
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