This Report Will Change Your Mind About When to Claim Social Security
Key Points
The most popular age to claim Social Security is still 62, although the number of people who claim benefits at that age is declining.
A report from the National Bureau of Economic Research shows that claiming before 70 could mean leaving thousands of dollars on the table.
A delayed claim could pay off because you increase your benefits, and longer life expectancies mean you may get those bigger benefits for life.
According to the Center for Retirement Research, there has been a steady decline in the number of people claiming Social Security at 62, but it still remains the most popular age to start benefits.
Age 62 is a common age to claim benefits because it is when you first become eligible to start collecting your retirement checks. If you're waiting on these benefits to retire, claiming them ASAP may be part of your retirement plans.
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However, if you were considering claiming Social Security at 62, or at any of the popular claiming ages, an important report may change your mind. Here's why.
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A look at the data could change your Social Security claiming choice
While 62 is the most popular age to claim benefits, one of the least popular claiming ages is actually the best time for most people to start benefits.
That age is 70.
According to the National Bureau of Economic Research (NBER), only around 10% of people claim Social Security at age 70. Unfortunately, for around 90% of retirees, 70 is actually the optimum or best age to claim benefits. So, very few people are claiming at the time that is best for them, if you look at the data.
And, if retirees knew just how much they're leaving on the table by not waiting to start their checks, many seniors would probably make a different choice.
The NBER report shows that the median loss in the present value of household lifetime discretionary spending that results from claims before age 70 is $182,370.
Why does claiming Social Security at 70 have such a big payoff?
Claiming Social Security at 70 can have a huge payoff because each month that you delay your Social Security benefits after age 62 results in a small increase in the amount of retirement income you can collect. This increase comes from:
- Avoiding early filing penalties that apply before your Full Retirement Age.
- Earning delayed retirement credits that you become eligible for if you wait to start benefits until after your FRA.
The increase in your benefits each month isn't huge, but it adds up over time. In fact, a standard benefit of $2,000 at full retirement age would become just $1,400 if claimed at 62, but would grow to $2,480 with a delay until 70.
The extra monthly income doesn't just increase the amount you eventually collect in each check, either. Social Security was designed to try to equalize lifetime benefits for early and late claimers, but this design was based on the shorter life expectancies people had decades ago.
Since more people now live longer, there is now a much greater chance that you'll collect your higher benefit checks for much longer than it takes to break even for the income you give up by delaying.
Understanding this may very well change your Social Security claiming decision. If you can wait to claim benefits until 70, potentially get over $1,000 more by doing so, and keep getting that extra $1,000 for many decades of retirement, you'll inevitably end up with a lot more money to spend.
Of course, you have to be prepared to actually wait until 70 to claim benefits. This must be part of your retirement planning process. Since most people can't work that long, you may need extra money in your 401(k) or IRA to support you for a while to enable your delayed claim.
Still, the NBER report should convince you it's worth trying to make that happen, as you could have hundreds of thousands of dollars extra to spend in your later years if you do.
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