Over the past eighty years, Social Security has provided monthly benefits to retired individuals. Although these payments aren’t enriching anyone, they have become essential for many retirees.
For the past 23 years, Gallup has carried out a survey to assess the degree to which retired workers depend on their received incomes.
Social Security
These surveys indicate that between 80% to 90% of retirees rely on their regular monthly payment, to varying degrees, to meet their living costs.
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An independent study conducted by the Center on Budget and Policy Priorities revealed that the poverty rate among individuals aged 65 and older would be almost quadruple what it currently is if not for Social Security benefits — standing at 10.2% as of 2022 when including these benefits compared to an anticipated 38.7% without them.
Hence, maximizing benefits from Social Security will be crucial for the financial health of most upcoming retirees.
However, to get the most out of your Social Security benefits, you must first comprehend how these payments are determined. Once you have this understanding, you can proceed effectively.
understand the significance of declaring your birth year
, as well as how choosing to collect at an earlier age (62 years old), a mid-range age (67 years old), or a later age (70 years old) could affect your monthly benefits.
The calculation of your monthly Social Security benefit involves these four elements.
Even though Social Security occasionally has unexpected elements for beneficiaries — were you aware that Social Security benefits may be subject to taxation at the federal level?
in addition to being present across nine states
? — The four elements utilized by the Social Security Administration (SSA) for determining your monthly payment are clear-cut:
- Work history
- Earnings history
- Full retirement age
- Claiming age
Your job performance and financial record are closely linked. When determining your monthly payout, the Social Security Administration considers your top 35 years of inflation-adjusted earnings. Earning a better average wage or salary over time—note that investment gains do not factor in here—increases the likelihood of receiving a larger monthly benefit upon retiring.
However, irrespective of your annual income, you will face penalties if you lack a minimum of 35 years of work experience. The SSA will add zeros for each year below 35 that you haven’t worked in your calculations. Should you rely on Social Security benefits to cover living expenses after retiring, aim to accumulate at least three-and-a-half decades of employment.
The third factor, your complete retirement age, is
based on the year of your birth
It signifies the age at which you qualify to receive 100% of your retired-worker benefit, and this aspect is the sole element beyond our control.
Lastly, but without being of lesser importance,
Your stated age can significantly sway the monthly (and lifetime) benefit amounts.
Although retired workers may start receiving benefits as young as 62 years old, there’s a monetary advantage to being patient. Specifically, each additional year they wait to claim their benefits from ages 62 through 70 can increase their payouts by up to 8%. The table illustrates how these increases vary based on an individual’s specific full retirement age.
|
Birth Year |
Age 62 |
Age 63 |
Age 64 |
Age 65 |
Age 66 |
Age 67 |
Age 68 |
Age 69 |
Age 70 |
| 1943-1954 | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% | 132% |
| 1955 | 74.2% | 79.2% | 85.6% | 92.2% | 98.9% | 106.7% | 114.7% | 122.7% | 130.7% |
| 1956 | 73.3% | 78.3% | 84.4% | 91.1% | 97.8% | 105.3% | 113.3% | 121.3% | 129.3% |
| 1957 | 72.5% | 77.5% | 83.3% | 90% | 96.7% | 104% | 112% | 120% | 128% |
| 1958 | 71.7% | 76.7% | 82.2% | 88.9% | 95.6% | 102.7% | 110.7% | 118.7% | 126.7% |
| 1959 | 70.8% | 75.8% | 81.1% | 87.8% | 94.4% | 101.3% | 109.3% | 117.3% | 125.3% |
| 1960 or later | 70% | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% |
Source of data: Social Security Administration.
What is the typical Social Security payment amount at ages 62, 67, and 70?
Even though each year between the standard ages of 62 and 70 comes with distinct benefits and downsides,
Three claimed age groups are expected to become particularly favored in the future.
: 62, 67, and 70.
Let’s quickly explore the advantages and disadvantages of these three claiming ages and examine more closely what the typical recipient receives monthly when they start benefits at age 62, 67, and 70.
-
What’s the reason for collecting at age 62?
The attraction of opting for benefits at age 62 lies in the ability to start receiving them without delay. Additionally, there’s the potential advantage of early access.
extensive reductions in Social Security benefits by 2033
Receiving your payment promptly might be seen as a strategy to avoid potential decreases.Conversely, your benefit amount will have a permanent reduction of 25% to 30% once you start claiming at age 62 (the exact percentage depends on your birth year). Furthermore, you could face additional penalties for filing early.
for instance, the retirement income examination
This enables the SSA to deduct part or all of your benefits based on your earnings. -
What’s the reason for collecting at age 67?
This might swiftly turn into the most favored retirement age, considering that 67 is the designated full retirement age for those born in 1960 or later, which encompasses much of today’s working population. Starting benefits at this age ensures your monthly payments remain untouched. However, should you live well past your eighties, retrospectively speaking, you may find yourself having forgone considerable Social Security earnings. -
What is the reason for collecting at age 70?
The upside of claiming benefits at age 70 is that you ensure receiving the highest possible monthly payment, which can be up to 32% higher compared to what you’d get at your full retirement age (the exact percentage depends on when you were born). However, there’s no assurance that you’ll live sufficiently long to fully capitalize on these increased payouts over time through Social Security.
Having gained insight into the advantages and disadvantages of these three filing ages, we can now look at what the typical Social Security benefit amounts to at age 62, 67, and 70.
Each year, the SSA’s Office of the Actuary publishes a detailed analysis outlining the
average monthly benefit for retired workers aged from 62 up to those over 99
. Please remember this information is derived from
age
Of retirees who stopped working as of December 2023, this doesn’t necessarily reflect the age at which they started receiving benefits, unless they were 62 years old.
Given these points, approximately 590,000 individuals live in the area.
The typical retired worker aged 62 received an average monthly benefit of $1,298.26.
In December 2023, approximately 2.92 million retired individuals received their payments.
mean benefit amounting to $1,883.50 upon reaching 67 years of age
Finally, approximately 3.01 million recipients who have retired are benefiting from this program.
saved an average of $2,037.54 at the age of 70.
.
Across the range of typical filing options, those who claimed benefits at age 70 received an average of 57% more compared to individuals who started receiving them as early as possible.
Statistically speaking, there
is
an older supervisor citing typical retirement ages
Given the significant differences in monthly benefits, you may be questioning whether choosing certain ages within the typical claiming window offers future retirees an advantage for optimizing their Social Security income. A thorough statistical study indicates that there indeed is such an optimal age.
In 2019, researchers from United Income published a study,
The Overlooked Retirement Strategy Right Before Our Eyes
, analyzed the claim choices of 20,000 retirees utilizing data from the University of Michigan’s Health and Retirement Study. The objective was to determine whether any particular age could maximize Social Security benefits when payouts are optimized. Here, “optimized” means achieving the highest possible benefit amount.
lifetime
(key word!) income collection.
As one would anticipate, this comprehensive study revealed that merely 4% of the 20,000 retirees analyzed had filed for benefits at the ideal time. Given that we cannot predict our life expectancy beforehand, this presents a challenge.
There will always be some level of uncertainty involved.
When we make our claim determination.
Moreover, each individual follows their distinct journey towards retirement. The mix of financial requirements, available retirement savings options, marital situation, tax impacts, personal well-being, among others, varies from person to person. Given this diversity, there isn’t a single plan that suits everyone, which naturally leads to differences in when and how people choose to claim their benefits.
However, the more important find is the nearly perfect inversion between actual and optimal claims. Although 79% of the 20,000 retired workers began receiving their benefit from ages 62 through 64,
Only 8% of the claims in this range eventually turned out to be optimal.
.
On the contrary, even though just a tiny fraction of retirees chose to start receiving their Social Security benefits at age 70, this still represents an interesting trend.
ideal for 57%, or 11,400, of the retirees reviewed
.
To be fair, this does not imply that all future retirees must wait until they reach 70 years of age before starting to collect their benefits. For example, individuals who suffer from one or more long-term illnesses that could reduce their life expectancy might have valid reasons to start receiving payments at an earlier stage.
However, according to this comprehensive statistical examination, being patient is likely to yield substantial rewards for most future retirees. This is an important consideration if you anticipate relying on Social Security, in whatever form, to cover your expenses during retirement.
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