Is it better to join Social Security at age 62, 67 or 70? A comprehensive study offers a clear answer.

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

Furthermore, more than two decades of annual surveys by the pollster Gallup have shown that up to 90% of then-current retirees require their monthly Social Security check to cover at least a portion of their expenses.

For some future retirees, maximizing their Social Security Benefit It won’t be a luxury – it will be a necessity. But to get the most out of Social Security possible, you first need to understand the ins and outs of how benefits are calculated and come to terms with how important your claiming age is. This can make all the difference in deciding whether it is best to apply for Social Security at age 62 (an early application), at age 67 (an intermediate application) or at age 70 (a later application).

The basic details of how your Social Security check is calculated

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

1. Work history

2. Earnings history

3. Full retirement age

4. Claiming age

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

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

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

Lastly, your claiming age is of utmost importance. Although eligible retired workers can begin receiving their Social Security benefits as early as age 62, there is a monetary incentive to be patient. For each year that a worker waits to claim their payment, their benefit can increase by up to 8%, starting at age 62 and continuing until age 70, as shown in the table below.

The story continues

Data source: Social Security Administration.

The ages of 62, 67 and 70 have clear advantages and disadvantages

As you can see, there are wide monthly payment variations based on the age you choose to receive your Social Security benefit.

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

• 62 years: The reason the earlier age to claim is so attractive is because beneficiaries don’t have to wait to receive payment. Furthermore, the Old Age and Survivors Insurance Trust Fund (OASI) could exhaust its asset reserves in just nine years. If this happens, radical benefit cuts of up to 21% may be necessary. Claiming at age 62 can potentially bring forward these reductions by a few years. On the downside, beneficiaries age 62 could see their monthly benefit permanently reduced by up to 30%, and could be exposed to the retirement income test, which allows the SSA to withhold part or all of their payment.

• 67 years: The attraction of claiming at age 67 is not having to worry about benefit reductions. This intermediate claim represents the full retirement age for anyone born in or after 1960. In other words, 67-year-old claimants 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, a claim at age 67 will result in a considerable amount of Social Security income left on the table.

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

Now that you better understand why these three ages will be popular among future retirees, let’s get back to the question at hand: Is it better to collect Social Security at age 62, 67, or 70?

A comprehensive study on age claims, released five years ago, has a clear answer to this question.

Is a claimed age really better than the 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 with their extrapolated “ideal” claiming age. By “ideal”, United Income refers to the claiming age that would have maximized the life income they obtained from Social Security. Note that higher 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% of the 20,000 workers examined maximized the benefits they received from Social Security. Since none of us know the “departure date” in advance, this is not a particularly surprising conclusion.

But the one finding that stood out was the simple inversion between actual and ideal claims within the traditional claims age range. United Income notes that while 79% of actual claims were made between the ages of 62 and 64, only 8% of ideal claims occurred within this 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 70s were the winners. Approximately 57% of the 20,000 retired workers studied would have maximized the lifetime benefits they received if they had received payment at age 70. For what it’s worth, age 67 was the second-best age to claim – about 10% of claimants would have maximized their lifetime payout with this middle-of-the-road approach.

While 70 was actually at the top of the class among claimed ages, that doesn’t mean waiting will work for everyone. For example, a person with one or more chronic health conditions that could reduce their life expectancy may benefit from receiving payment sooner. Likewise, it may make sense for a lower-income spouse to claim their benefit earlier to allow the family support payment to increase over time.

Each person’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 claiming Social Security benefits.

However, the data makes it clear that waiting has its financial advantages. Future retirees who are in good health should consider a later claim.

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Is it better to join Social Security at age 62, 67 or 70? A comprehensive study offers a clear answer. was originally published by The Motley Fool