Whether you realize it or not, Social Security income is a necessity for most retired workers. In 22 years of annual surveys from national pollster Gallup, between 80% and 90% of retired respondents note they lean on their monthly check from Social Security as a “major” or “minor” source of income. Meanwhile, 76% to 88% of future retirees anticipate needing their monthly benefit to cover at least a portion of their expenses.

Furthermore, the Center on Budget and Policy Priorities estimates that monthly Social Security payouts have singlehandedly reduced the poverty rate for adults aged 65 and over from 38.7% without the program to just 10.2%, as of 2022.

For generations of future retirees, it’s important to get as much as possible out of America’s top retirement program. But to do so, you’ll need to understand the particulars of how your monthly benefit is calculated, as well as wrap your hands around the importance of your claiming age. Knowing these factors can put the proverbial ball in your court when deciding if an early (age 62), middle ground (age 65), or late (age 70) Social Security claim makes sense.

These four items are used to calculate your monthly Social Security check

Though there are certain aspects of Social Security that can be confusing, such as the potential for being taxed on a portion of your benefits or being able to pull a mulligan and undo your retired-worker benefit claim, the four items used by the Social Security Administration (SSA) to calculate your monthly check are easy to understand. These factors are your:

  • Work history.
  • Earnings history.
  • Full retirement age.
  • Claiming age.

The first two factors I’ll discuss together given that they’re tied at the hip. The SSA will take into account your 35 highest-earning, inflation-adjusted years when calculating your monthly Social Security payout. This means if you earn more, on average, throughout your lifetime — meaning wages and salary, but not investment income — you can probably expect a bigger benefit during retirement.

The limitation to the above is that you’ll be penalized if you don’t work at least 35 years. For every year less of 35 worked, the SSA averages a $0 into your calculation.

Another factor taken into consideration by the SSA is your full retirement age — i.e., the age you become eligible to collect 100% of your monthly retired-worker benefit. Since your full retirement age is determined by your birth year, it’s the only one of the four items you can’t control.

The final component used to calculate your Social Security check, and the one I’ve already noted has the most sway when it comes to determining how much you’ll receive from America’s top retirement program, is your claiming age.

Eligible retired workers can begin receiving their monthly benefit as early as age 62. However, there’s a monetary-based incentive for workers to be patient. For every year an eligible worker waits to claim their payout, their monthly benefit can increase by as much as 8%, beginning at age 62 and continuing until age 70, as shown in the table below:

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%

DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.

What’s the average Social Security benefit at ages 62, 65, and 70?

Based on the monthly payout figures above, you can get a feel for how important claiming age can be. Taking your payout early has the potential to permanently reduce your monthly take-home by up to 30%, depending on your birth year. At the other end of the spectrum, patience can yield a monthly payout that’s between 24% and 32% higher than what you’d have received at your respective full retirement age.

Despite this payout variance, advantages and drawbacks exist throughout the traditional claiming age range of 62 through 70. Within this range, ages 62, 65, and 70 are likely to be among the most-popular claiming ages moving forward. Let’s briefly walk through the pros and cons of each, as well as take a closer look at the average benefit retirees are receiving at each of these respective ages.

  • Age 62: The key advantage to an age 62 claim is accessing your payout as soon as you’re eligible. The other lure of an early filing is the possibility of front-running benefit reductions in the Old-Age and Survivors Insurance Trust Fund (OASI). The OASI is expected to exhaust its asset reserves in nine years. On the other hand, taking benefits at age 62 means accepting a permanent monthly-payout reduction ranging between 25% and 30%, based on your birth year, and may expose you to additional early-filer penalties.
  • Age 65: The best thing about the middle-ground approach is that it minimizes the amount your monthly payout is reduced but also gives you access to your benefit while you’re young enough to enjoy it. The downside is that if you live well into your 80s, an age 65 claim will result in your leaving quite a bit of Social Security income on the table. An age 65 claim can also expose you to early-filer penalties.
  • Age 70: The lure of an age 70 claim is that you’ll receive the highest possible monthly benefit. However, the cost is that you’ll have to wait eight years, post-eligibility, before you receive a cent in benefits. Furthermore, there’s no guarantee you’ll live long enough to maximize your lifetime benefits received by waiting until age 70 to take your payout.

Now for the $64,000 question: How much are retired-worker beneficiaries taking home each month at ages 62, 65, and 70?

To answer this, we’ll turn to a recently updated data set from the SSA’s Office of the Actuary. Keep in mind that the following average-monthly benefits are based on the age of the recipient in December 2023 and doesn’t necessarily represent their claiming age. For example, an age 65 retired-worker beneficiary may have begun taking their payout anywhere from age 62 through 65.

In December 2023, roughly 590,000 age 62 retired-worker beneficiaries brought home $1,298.26. That compares to the $1,563.06 age 65 beneficiaries took home in December and the $2,037.54 retired-worker beneficiaries received at age 70. In other words, retired workers at age 70 took home 57% more than those at age 62 this past December.

Does this mean claiming later is the smartest move for future retirees? A lengthy study appears to have this highly sought-after answer.

Patience can pay off handsomely when it comes to claiming Social Security benefits

Five years ago, the analysts at online financial planning and wealth management company United Income tackled one of the most difficult subjects for retirees. Namely, they examined which age, if any, would be best to claim Social Security benefits.

What makes claiming benefits such a challenge is that none of us (thankfully!) knows our “departure” date. Without knowing this date ahead of time, there’s always some level of guesswork involved when claiming benefits.

With this in mind, United Income’s analysts relied on data from the University of Michigan’s Health and Retirement Study to extrapolate the claiming decisions of 20,000 retired workers to determine if they’d made an “optimal” choice. In simpler terms, researchers looked at whether or not these 20,000 claimants took their benefits at the age that maximized their lifetime benefits. Note the emphasis on “lifetime,” which may not be synonymous with the highest monthly benefit.

Not surprisingly, only 4% of the 20,000 claimants examined made an optimal claim. But the far bigger takeaway was the disparity between actual and optimal claims.

According to the report (“The Retirement Solution Hiding in Plain Sight”), 79% of the 20,000 retired workers studied began taking their payout from ages 62 through 64. However, the overwhelming majority of optimal claims occurred at or after full retirement age.

As an example, United Income found that ages 62, 63, and 64 were collectively responsible for only 8% of all optimal claims. In fact, ages 62 through 65 (not in this listed order) were the four ages that were least likely to maximize lifetime Social Security payouts.

By comparison, age 70 would have been the optimal claiming age for 57% of the 20,000 claimants studied.

In fairness, there are instances where an early claim can make complete sense. If you have one or more chronic health conditions that could shorten your lifespan, or you’re the secondary earner in a household and want your spouse’s payout to grow over time, an earlier claim may be a smart financial decision.

But when examined as a whole, United income’s study makes it crystal clear that patience should pay off handsomely for most future retirees when it comes to claiming their Social Security benefit.