Is it better to collect Social Security at age 62 or 67? A thorough study digs in and provides a clear answer.
For most Americans, Social Security isn’t just another check they’ll receive during their golden years. It represents a vital source of income, necessary to make ends meet. After 23 years of annual surveys, the national pollster Gallup has found that 80 to 90 percent of retirees rely on their monthly Social Security check as a “major” or “minor” source of income.
For the multiple generations of workers currently in the workforce, maximizing what you receive from Social Security will be a necessary goal.
But in order to maximize what you’ll receive, you’ll first need to understand the inner workings of how your Social Security benefits are calculated and recognize the importance of your claiming age when it comes to receiving benefits. monthly and lifetime benefits. Declaring age and a few other personal factors can make all the difference in deciding whether an early application, such as age 62, or an intermediate approach, such as applying at age 67, is right. more logical.
The four pillars for calculating your Social Security check
While some aspects of Social Security can be confusing and social media isn’t always the most helpful in finding the right answer, the four pillars the Social Security Administration (SSA) relies on to calculate your monthly check social security are simple and easy to understand:
Earnings history
Work history
Full retirement age
Claim age
Your income history and employment history are two interrelated factors. When calculating your monthly benefit, the SSA will take into account your 35 years of highest earning income, adjusted for inflation (wages and salaries, but not investment income). This means that if you earn more on average throughout your life, there’s a good chance you’ll receive a larger Social Security check in retirement.
On the other hand, the SSA will penalize eligible beneficiaries who work under 35 years of age. For each year of work under age 35, the SSA will add an average of $0 into your calculation, reducing your monthly payment.
The third factor, your full retirement age, represents the age at which you become eligible to receive 100% of your retirement benefit. This is the only one of the four pillars that you cannot control and is entirely determined by the year you were born. The full Social Security retirement age has been between 65 and 67 since the program’s inception.
Finally, there is the most important variable: your age to claim. Although Social Security retiree benefits can begin as early as age 62, there is a financial carrot that encourages retirees to be patient. Starting at age 62 and continuing through age 70, retired workers waiting to claim their benefits will see their benefits increase by up to 8% per year, as shown in the table below.
year of birth | 62 years old | 63 years old | 64 years old | 65 years | 66 years old | 67 years old | 68 years old | 69 years old | 70 years |
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.
Receiving benefits at age 62 or 67 has clear advantages and disadvantages
As you can see in the table above, there are massive Potential monthly benefits vary within the traditional claimant age range of 62 to 70.
While each age in this demand range has its own set of positives and negatives, the ages of 62 and 67, which I referenced earlier, will likely be among the most popular choices for future generations of retirees . Let’s take a closer look at the pros and cons of these two claim ages.
62 years old: The main attraction of applying at age 62 is the luxury of not having to wait to get your hands on your retired worker benefits.
Applying at an early age could also be particularly attractive to workers concerned about the possibility of reduced benefits in the not-too-distant future. The Old Age Survivors Insurance Trust (OASI), responsible for distributing benefits to nearly 51 million retirees and 5.8 million surviving beneficiaries each month, is expected to exhaust its asset reserves by 2033 , according to the last Board of Directors. Directors’ report. If this happens, sweeping benefit cuts of up to 21% may be necessary to maintain benefits through 2098 without the need for further cuts.
On the other hand, receiving benefits at age 62 can result in a permanent monthly reduction of 25 to 30% in your Social Security check, depending on your year of birth, compared to what you would have received at retirement age at the same rate. full.
Additionally, taking benefits before reaching full retirement age may subject you to early filing penalties, such as partial or full withholding of your benefits by the SSA if you earn above the thresholds predefined income.
67 years old: The middle-ground approach of collecting benefits at age 67 will quickly gain popularity for two reasons. For starters, 67 is the full retirement age for anyone born in 1960 or later, which makes up most of today’s workforce. Future retirees wishing to receive 100% of their monthly benefit will be encouraged to wait five years, after their eligibility, before receiving their benefit.
The other reason age 67 is expected to gain popularity is conversion to Social Security Disability. When people receiving Social Security Disability (SSDI) benefits reach full retirement age, Social Security automatically converts them to retired worker benefits.
The possible downside to collecting benefits at age 67 is that you run the risk of living to age 80 and leaving a lot of extra Social Security income on the table.
With a better understanding of the factors that can influence Social Security eligibility age, let’s return to the overarching question at hand: Is it better to collect Social Security at age 62 or 67?
To answer this question, I will turn to a large-scale study published five years ago.
Patience can (often) pay off handsomely when it comes to maximizing your Social Security income
Before diving deeper, let me preface this discussion with a few key caveats. First, since none of us know our “start” date in advance, there will always be some degree of educated guesswork involved in deciding what age it makes sense to start collecting Social Security benefits.
Additionally, everyone follows their own path and will need to take financial variables, marital status and personal health into account when claiming their payment. This is why there is no single model for receiving social security.
That being said, researchers at United Income published an in-depth study, “The Retirement Solution Hidden in Plain Sight,” which examined the likelihood of certain claiming ages maximizing retirees’ receipt of lifetime benefits from the social Security. A total of 20,000 retired worker claims were extrapolated using data from the University of Michigan Health and Retirement Study.
The headline was not unexpected: Only 4 percent of the 20,000 applicants examined had maximized their Social Security benefits (chosen to receive benefits at the age that maximized their lifetime payout). Without knowing your date of death in advance, there is no guarantee that you have made the best choice.
But what might surprise future generations of eligible pension recipients is that the actual claims and the extrapolated optimal ages for claiming benefits were more or less inverses of each other. While 79% of retirees examined began collecting Social Security between the ages of 62 and 64, only about 8% of beneficiaries in this age group reportedly maximized their lifetime benefits.
In comparison, United Income research showed that 57% of workers examined would have maximized their lifetime benefits if they had started collecting Social Security at age 70. In terms of maximizing lifetime benefits, age 67 was the second highest, at around 10%. Between ages 62 and 67, the latter gives retired workers a higher statistical probability of maximizing their lifetime income from Social Security.
To reiterate what I said earlier, this does not mean that everyone will be better off if they collect their Social Security benefits at age 70 or 67. Variables that may include the availability of financial retirement plans (401(k)s and IRAs) and your personal health should influence your decision.
But if we look at this group of 20,000 retirees overall, we see that patience is most often rewarded when it comes to collecting Social Security income.
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Is it better to collect Social Security at age 62 or 67? A thorough study digs in and provides a clear answer. was originally published by The Motley Fool
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