Millions of retirees in the United States depend on Social Security to fund their retirement years. Yet, surprisingly, many do not fully understand how the timing of their benefits claim can significantly impact their monthly income.
For some, a well-timed decision could result in an increase of up to $740 more per month. Let’s break down how this works and explore whether it’s the right strategy for you.
Timing Is Everything
One of the biggest factors affecting your Social Security benefit amount is when you start collecting.
Key Ages to Know
- 62: The earliest age you can begin claiming benefits. Payments are reduced for early claims.
- Full Retirement Age (FRA): This is between 66 and 67, depending on your birth year. At FRA, you receive 100% of your benefit.
- 70: Waiting until this age maximizes your monthly payments, with increases of up to 32% compared to claiming at FRA.
Why Waiting Pays Off
The Social Security Administration calculates benefits based on your earnings history and the age you start collecting.
Claiming early at 62 results in a permanent reduction to your benefits—about 5% to 6% per year before your FRA. Conversely, delaying past FRA increases your payments by 8% per year until age 70.
Example: The $740 Difference
Imagine a retiree eligible for $1,298 per month at age 62. By waiting until 70, their monthly payment could rise to $2,038—an increase of $740.
| Age | Monthly Payment |
|---|---|
| 62 | $1,298 |
| 66 (FRA) | $1,860 |
| 70 | $2,038 |
Over a year, that’s an extra $8,880—a significant difference for retirees.
Should You Delay Benefits?
While waiting to claim benefits can be financially advantageous, it isn’t the right choice for everyone. Here’s what to consider:
Delaying Benefits May Be Ideal If:
- You Have Savings: Adequate savings can help you bridge the gap while you wait.
- You’re Healthy: Longer life expectancy makes delaying more beneficial.
- You Want to Maximize Income: If you’re aiming for the highest possible monthly payment, waiting until 70 is the way to go.
Claiming Early May Be Better If:
- You Need the Income: Immediate financial needs may outweigh long-term benefits.
- Your Health is a Concern: If life expectancy is shorter, starting earlier ensures you receive benefits while you can enjoy them.
- You Prefer Early Retirement: If enjoying active years is a priority, early benefits might align with your goals.
Strategies to Boost Benefits
Beyond timing, there are other ways to increase your Social Security payments:
- Work Longer: Social Security calculates benefits based on your highest 35 years of earnings. Replacing lower-earning years with higher-earning ones can boost your monthly amount.
- Delay Spousal Benefits: If you’re married, coordinating claims with your spouse can maximize household income.
- Strategic Claiming: A little-known trick is to file and suspend benefits at FRA, allowing your payments to grow while potentially enabling spousal benefits.
- Plan for Taxes: Up to 85% of your Social Security income could be taxable depending on your total income. Managing withdrawals from other retirement accounts can minimize tax burdens.
A Study on Delaying Benefits
A 2022 study by the National Bureau of Economic Research found that 99.4% of older adults could increase their lifetime income by delaying benefits.
However, financial analyses often miss personal factors, such as health, lifestyle, and retirement goals, which play a crucial role in this decision.
A Personalized Decision
Deciding when to claim Social Security benefits is a deeply personal choice that depends on:
- Your financial situation.
- Your health and life expectancy.
- Your retirement goals.
Understanding the system, running the numbers, and planning ahead are the best ways to make an informed decision.
While delaying benefits often increases monthly payments, sometimes starting earlier is the key to a more fulfilling retirement.
