If I Could Tell All Retirees 1 Thing About Social Security, I'd Say to Do This Before You Claim Benefits

Few decisions as you near retirement are as important as when you decide to claim Social Security benefits. It's a decision that will permanently affect how much you receive, so it's best not to gloss over it.

However, before making a Social Security claiming decision, I'd tell retirees to find out their break-even age, which is when the total lifetime benefits from claiming at one age equal those at another age.

This is one of the best ways to get perspective on the broad implications of your claiming decision.

Image source: Getty Images.

When you claim Social Security permanently affects your benefits

Your monthly Social Security benefit begins with your primary insurance amount (PIA). This is the monthly amount you'll receive by claiming benefits at your full retirement age (FRA). Below are FRAs based on birth years:

Image source: The Motley Fool.

Starting at your FRA, Social Security will adjust your monthly benefit based on whether you claim before or after then.

If you claim before your FRA, Social Security will reduce your monthly benefit by 5/9 of 1% monthly, up to 36 months. Each additional month after that will further reduce benefits by 5/12 of 1%. Assuming your FRA is 67 (which is true for most new claimers), here's how much your monthly benefit will be reduced based on claiming age:

Table by author.

On the flip side, delaying benefits past your FRA will increase them by 2/3 of 1% monthly until you reach age 70. This works out to 8% annually and a roughly 24% increase if your FRA is 67 and you delay until 70.

Use your break-even age to help you decide if an early or delayed claim is worth it

Much of the Social Security claiming decision comes down to whether you want smaller monthly benefits for a longer period or larger monthly benefits for a shorter period. Knowing your break-even age can be beneficial in this case because it gives you more perspective on which claiming age aligns best with your financial needs and timeline.

To see how your break-even age plays out, let's assume you're debating between claiming benefits at 62 and 70, with a monthly benefit of $2,000 at 67 (your FRA). Your monthly benefits at those ages would be $1,400 and $2,480, respectively, and below is how your lifetime benefits would play out:

Table by author.

In this case, the break-even age is roughly 80.4 years old. Before then, the total amount received from claiming at 62 surpasses that from claiming at 70. Afterward, the roles reverse, with lifetime benefits from claiming at 70 being higher.

The good news is that no matter your monthly benefit amounts, the break-even ages stay consistent between different claiming ages. For instance, the break-even age for those choosing between 67 and 70 is around 82.5 years old, while the break-even age between 62 and 67 is approximately 78.7 years old.

Don't lose sight of other factors

Your break-even age can help you make a claiming decision, but it shouldn't be the only factor you consider. You should also consider your financial needs, personal and family health history (which could affect life expectancy), other income sources, and retirement plans.

It's always best to approach a Social Security claiming decision holistically. It's perfectly fine to give more weight to certain factors over others, but you don't want to completely ignore details that could matter down the road.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.