One important decision can have big implications on your financial well-being.
For most Americans, Social Security is more than just a monthly check — it’s a financial lifeline that’s necessary for seniors to cover their expenses.
Since 2002, national pollster Gallup has surveyed seniors annually to determine their reliance on Social Security income. According to the results, between 80% and 90% of retirees noted they lean on their Social Security check in some capacity to make ends meet. This is why netting a hearty payout is so important to its more than 49 million current retirees, and the program’s countless future beneficiaries.
These four core factors influence the size of your Social Security check
There is more than a half-dozen factors that ultimately determine how much Social Security income you’ll receive and get to keep. For instance, your benefits can be taxed at the federal rate above certain income thresholds, as well as in 12 states.
But when boiled down to the basics, four core factors go into determining how much you’ll receive each month from America’s top retirement program.
Two of these components are intertwined: your work history and earnings history. When the Social Security Administration determines your monthly benefit, it takes into account your 35 highest-earning, inflation-adjusted years. Not only do you want to earn as much as possible when you work (for a variety of reasons), but every year less of 35 worked results in a $0 being averaged into your benefit calculation.
The third factor imperative for calculating your Social Security retirement benefit is something that’s completely beyond your control: your birth year. The year you’re born determines your full retirement age — i.e., the age where you become eligible to receive 100% of your retired worker benefit. Think of your full retirement age as a line in the sand. If you being taking benefits prior to reaching it, you won’t receive your full payout. Wait until after you pass this line, and your benefit can grow beyond 100% of what you’re due at full retirement age.
The fourth factor, and arguably the one that matters most for future retirees, is the age you decide to claim your benefit. Although retired worker benefits can begin at age 62, there’s a wide variance in what you’ll receive based on what age you choose to take your payout, as you can see 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. TABLE BY AUTHOR.
This Social Security table is the key to making or breaking your retirement
While this Social Security table may look like nothing more than a bunch of jumbled numbers, it’s a blueprint that can help future beneficiaries get the most out of America’s most-successful retirement program.
As noted, you have no control over when you’re born, which is what determines your full retirement age. But based on the age you choose to begin taking your benefit, your check could be permanently reduced by as much as 30%, or perhaps increased by between 24% to 32%.
For example, let’s arbitrarily assume that the average retired worker benefit of $1,833.23 for March 2023 represents what a fictitious worker would be scheduled to receive at their full retirement age. If this individual were born in 1960 or later and they began taking their payout as early as possible (age 62), they’d be accepting a 30% permanent reduction to their monthly benefit for the rest of their life. In nominal dollar terms, we’re talking about a $550 monthly reduction.
On the flipside, this fictitious future retiree born in 1960 or later could choose to wait until age 70 to begin taking their benefit and would enjoy a 24% boost above and beyond what they were due at full retirement age. This “boost” would put $440 extra in their pocket each month for the remainder of their life. That’s a cumulative $990/month swing ($11,880 annually) covering an eight-year period of claiming ages.
Deciding when to begin taking benefits can be tricky
The tricky part of deciding when to take Social Security benefits is there is no perfect answer. Although the table above lays out very clearly what will happen to your benefit based on your birth year and claiming age, everyone’s situation is different. In other words, our health, financial situation, and marital/family status is unique.
We also don’t know when our time will come. While that’s not something I, personally, want to know, without this vital piece of information, we’ll never know if we’ve made an optimal claiming decision that maximizes our lifetime benefits.
Historically speaking, most retirees have claimed their benefit prior to reaching full retirement age. An early claim can make sense in certain situations, such as if you have a chronic health condition or have no other sources of income. Additionally, claiming early can be a wise decision if you’re a lower-earning spouse and want to generate revenue for the household while allowing your significant other’s future retirement benefit to grow over time.
Comparatively, only around 10% of retirees have historically taken their benefit after hitting their full retirement age. A later claim can be a smart move for someone in good or excellent health, or who doesn’t have much saved for retirement and plans to lean heavily on their payout during their golden years.
Based on a study released by investment management and financial planning company United Income in 2019, waiting is the better move for most people. United Income analyzed claims data from the University of Michigan’s Health and Retirement Study to back-test whether retirees previously made an optimal claiming choice. United Income found that only 6.5% of claimants would have gotten the most out of Social Security if they’d taken their payout at age 62 or 63. Comparatively 57% of previous claimants would have made an optimal decision taking their payout at age 70.
It’s something for future retirees to keep in mind as they ponder the Social Security table that can determine their financial well-being.