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Is it better to take social security at 62, 67 or 70? A global study offers a clear answer.

For most retirees, Social Security plays an important role in building their financial foundation. An analysis from the Center on Budget and Policy Priorities finds that Social Security benefits reduced the poverty rate for adults aged 65 and older to 10.2 percent, compared to an estimated 38.7 percent if the program did not exist .

Additionally, more than two decades of annual Gallup surveys have shown that up to 90 percent of today’s retirees need their monthly Social Security check to cover at least part of their expenses.

For some future retirees, maximizing their Social Security benefits won’t be a luxury: it will be a necessity. But to get the most out of Social Security, you must first understand the ins and outs of how benefits are calculated and accept the importance of the age of your claim. This can make all the difference in deciding whether it’s best to take Social Security at age 62 (an early claim), at age 67 (an interim claim), or at age 70 (a later claim).

A pair of glasses, a pen and a calculator placed on a social security benefits application form.A pair of glasses, a pen and a calculator placed on a social security benefits application form.

Image source: Getty Images.

The nuts and bolts of calculating your Social Security check

The good news is that you don’t need a degree in calculus to understand how the Social Security Administration (SSA) calculates your monthly check. This is because the four factors used by the SSA are simple.

  1. Work history

  2. Earnings history

  3. Full retirement age

  4. Claim age

The first two elements are closely related to each other. When determining your monthly Social Security benefit, the SSA will take into account your 35 highest-earning years, adjusted for inflation. Keep in mind that this amount is based on earned income (salary and salary) and does not include any investment income you may have received.

The caveat to the above is that the SSA will also penalize you if you don’t work for at least 35 years. For each year of less than 35 worked, the SSA represents on average $0 in your calculation. If you have any hope of maximizing what you’ll receive from Social Security, you’ll want to spend 35 years (or more) in the workforce.

The third factor is your full retirement age, which is entirely determined by your birth year. Your full retirement age represents the age at which you become eligible to receive your full monthly retired worker benefit.

Finally, the age of your claim is of utmost importance. Although eligible retired workers can begin receiving their Social Security benefits as early as age 62, there is a financial incentive to be patient. For every year a worker waits to claim their compensation, their benefits can increase by up to 8%, starting at age 62 and continuing through age 70, 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.

The ages of 62, 67 and 70 each have obvious advantages and disadvantages

As you can see, there are large monthly payment gaps depending on the age you choose to receive your Social Security benefits.

Within the traditional age range of applicants, 62 to 70, each age has its own advantages and disadvantages. But within this range, three ages – 62, 67 and 70 – are expected to be particularly popular choices for future generations of retired workers. Let’s take a closer look at the pros and cons of claiming Social Security benefits at these respective ages.

  • 62 years old: The reason the earlier claiming age is so attractive is that beneficiaries don’t have to wait to get their hands on their payout. Additionally, the Old Age and Survivors Insurance (OASI) Trust Fund can deplete its asset reserves in as little as nine years. If that happens, sweeping benefit cuts of up to 21% could be necessary. Applying at age 62 can potentially anticipate these reductions by a few years. On the other hand, 62-year-old beneficiaries could see their monthly benefit permanently reduced by up to 30%, and they could be exposed to the retirement income test, which allows the SSA to withhold part or all of their payout.

  • 67 years old: The appeal of being 67 years old is not having to worry about benefit reductions. This interim claim represents the full retirement age for anyone born in 1960 or later. In other words, claimants aged 67 are guaranteed their full benefits and are still young enough to take advantage of them. On the other hand, if you live to age 80, filing at age 67 will result in a significant amount of Social Security income left on the table.

  • 70 years: The dangling carrot of claiming at age 70 is the ability to maximize your monthly benefit. Depending on your year of birth, 70-year-old claimants will see their benefit increase 24 to 32 percent above what they would have received at full retirement age. The potential downside to being patient is that there is no guarantee that you will live long enough to maximize what you receive during your lifetime.

Now that you better understand why these three ages are necessarily popular with future retirees, let’s return to the question at hand: is it better to take Social Security at 62, 67 or 70?

An in-depth study on age reporting published five years ago provides a clear answer to this question.

A person sitting in an office holding documents in their right hand and looking at an open laptop on a desk.A person sitting in an office holding documents in their right hand and looking at an open laptop on a desk.

Image source: Getty Images.

An age that claims to be truly better than others

In 2019, researchers at United Income published a report (“The Retirement Solution Hiding in Plain Sight”) that compared the actual claiming ages of 20,000 retired workers to their extrapolated “optimal” ages. By “optimal”, United Income refers to the age of application that would have maximized the lifetime income they generated through social security. Note that highest monthly income and lifetime income may not be synonymous.

Using data from the University of Michigan Health and Retirement Study, researchers determined that only 4 percent of the 20,000 workers examined had maximized the benefits they received from Social Security. Since none of us knows our “departure date” in advance, this conclusion is not particularly surprising.

But the one finding that stood out was the obvious reversal between actual and optimal claims within the traditional claims age range. United Income notes that while 79% of actual claims were filed between ages 62 and 64, only 8% of optimal claims occurred within that range. In fact, ages 62 to 65 (not in that order) were the four ages least likely to maximize lifetime Social Security benefits.

On the other side of the coin, the age of 70 was the big winner. About 57% of the 20,000 retired workers studied would have maximized the lifetime benefits they received if they had received their payout at age 70. For what it’s worth, age 67 was the second best age to file: About 10% of claimants would have maxed out their benefits. their payment for life with this intermediate approach.

Although age 70 truly tops the age bracket for applicants, that doesn’t mean waiting will work for everyone. For example, a person suffering from one or more chronic health conditions that could reduce their life expectancy could benefit from an earlier payment. Likewise, it might make sense for a lower-earning spouse to claim benefits earlier to allow the breadwinner’s benefit to increase over time.

Everyone’s combination of financial needs, marital status, and personal health will be different, which is why there is no one-size-fits-all approach to applying for Social Security benefits.

However, the data clearly shows that there are financial benefits to waiting. Future retirees who find themselves in good health would do well to consider a later claim.

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Is it better to take social security at 62, 67 or 70? A global study offers a clear answer. was originally published by The Motley Fool

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