Whether you realize it or not, Americans’ reliance on Social Security is near an all-time high, at least according to national pollster Gallup.
In April 2019, Gallup surveyed retired workers and found that 90% of them are at least somewhat reliant on their monthly benefit check to make ends meet. This ties an all-time high, dating back almost 20 years. Comparatively, 83% of nonretirees anticipate needing Social Security income to pay their bills during retirement, which is just 1 percentage point below an all-time high.
In other words, maximizing what you’ll receive from Social Security is becoming more important than ever.
These are the most important factors in determining your Social Security benefit
As you may already be aware, there are more than a half-dozen factors than can directly affect how much you’ll receive from Social Security and/or how much of your benefit payout you’ll get to keep. Among these factors, four stand head and shoulders above the rest.
The first two, your work history and earnings history, are linked at the hip. The Social Security Administration (SSA) takes your 35 highest-earning, inflation-adjusted years into account when calculating your benefit at full retirement age (I’ll touch on what “full retirement age” is in a moment). This means it’s not only in your best interest to earn as much as you can every year you work, but to work a minimum of 35 years in order to have any chance of maximizing what you’ll paid by the program. For every year less of 35 worked, a $0 is averaged into your calculation.
The third factor of merit is your birth year, which is what helps to determine your full retirement age. This is the age the SSA determines you to be eligible to receive 100% of your monthly payout. For the vast majority of nonretirees, your full retirement age is likely 67. The gist here is simple: Take your payout prior to hitting your full retirement age, and you can expect a permanent reduction to your benefit. Likewise, waiting until after your full retirement age can boost your payout even more.
Fourth, but most important, is your claiming age. Although retired worker benefits can begin at age 62, the program gives incentive to practicing patience. For every year an eligible claimant holds off on taking their payout, it’ll grow by up to 8%, until age 70. Thus, all other factors being identical, a retired worker taking a payout at age 70 could earn as much as 76% more per month than someone taking a payout at age 62.
Of course, it’s not just about the monthly payout — it’s about what strategy will net you the most money over your lifetime. Let’s look at what the most and least common claiming ages were in 2018, according to SSA data, to get a better feel for what retirees are thinking.
The two most popular ages to claim Social Security benefits
Based on the 2019 supplement filed by the SSA, 1.5 million new retired workers claimed benefits in 2018. Among these 1.5 million people, age 62 was the clear-cut most popular retirement age, with 31% of claimants going this route. As a reminder, claiming benefits at the earliest age possible can result in monthly payout reductions of between 25% and 30% from what you’d receive at full retirement age.
There was a pretty sizable drop-off to the second most popular age, which the SSA simply referred to as “full retirement age.” Since full retirement age can vary for baby boomers, it represents either age 66, 66 years and 2 months, or 66 years and 4 months, in 2018. Statistics show that 14.3% of retired workers chose to take their payout when they reached their full retirement age.
It’s also worth noting that 16.2% of new retired worker claimants were disability conversions at age 66, 66 years and 2 months, or 66 years and 4 months. Disabled worker benefits automatically convert to a retired worker benefit in the month a disabled worker attains full retirement age. I chose not to include this percentage with the above 14.3%, given that it’s not a choice by a retiree, but rather an automatic conversion made by the SSA on his or her behalf.
Interestingly, a study by United Income found that while a majority of seniors favor an age 62 claim, it rarely makes for an optimal decision. Though we (thankfully) don’t know our expiration date, United Income’s study found that better than four out of five seniors would have been best off had they waited until age 67 to 70 to begin taking their payout.
The least popular ages to take Social Security benefits
As you’ve seen, inclusive of the disability conversions, more than 61% of new claimants in 2018 began taking their payouts at ages 62 or 66. But there were also a couple of ages where few seniors were tempted to begin taking their payout.
Although the SSA didn’t break down specific percentages by age, it did note that between the month following a retiree’s full retirement age and age 69 (i.e., 66 years and 5 months through 69 years 11 months), only 8.4% of seniors chose to begin taking their benefit.
Why don’t more people wait until after their full retirement age to take their payout? One possibility is that Americans are worried about the future solvency of Social Security and want to ensure they get as much as they can now by claiming early. Financial hardship is another reason, with a number of today’s retirees having insufficient savings to wait until ages 67 to 69 to begin taking their payout.
Another interesting point from the aforementioned United Income study is that age 70 is when a majority of seniors would benefit most from claiming their payout, at least based on hindsight. In 2018, only 6.5% of claimants took their payout at age 70 or later, but United Income found this to be the age where 57% of seniors would have made their optimal claim.
As the full retirement age pushes toward its peak of 67 by 2022, we’re likely to see the average claiming age increase. But for the time being, age 62 remains, far and away, the most popular claiming age.