The decision of when to start receiving Social Security benefits is one of the most important in a person's financial life. Although the earliest option to begin collecting is at age 62, data suggest that waiting may be a better long-term strategy.
Many Americans choose to start receiving their benefits as soon as possible, but there are reasons to think twice. Although the Social Security Administration allows eligible individuals to claim benefits starting at age 62, doing so means receiving a permanently reduced monthly amount. This cut can reach up to 30% of the full benefits a person would receive at their "full retirement age" (FRA), which ranges between ages 66 and 67.
Why wait until age 70?
Waiting until age 70 can be one of the most profitable decisions for retirees. According to some studies, the difference between claiming at age 62 and waiting until age 70 is significant, both in terms of monthly payments and long-term benefits.
Studies show that waiting until age 70 can result in an 8% annual increase in benefits up to that age. This means that a person who delays their application may see an increase of up to 24% in their monthly payments compared to those who claim at age 62. For lower incomes, benefits can increase by as much as 27.4%.
For many people, especially those who can expect a longer life, delaying retirement can result in a considerable amount of money over the coming years. According to the data, a 62-year-old man who waits until age 70 could receive up to $404,736 in lifetime benefits, compared to $362,880 if he starts at 62. For women, who tend to live longer, the difference can be even greater, reaching up to $491,040 compared to $411,600 when starting at age 62.
The break-even point, at which the benefits of delaying retirement surpass those of early claims, is generally found between ages 77 and 81. For retirees who surpass that age, waiting to apply for benefits will always result in a more financially beneficial option.
Considerations to keep in mind before making a decision
Although the numbers favor those who wait, this decision shouldn't be taken lightly. Financial experts recommend evaluating various factors before deciding when to start receiving benefits.
Life expectancy, marital status, savings, and financial needs are just some of the elements to consider. Couples can also explore strategies to maximize all their benefits, such as one spouse applying for benefits early and the other delaying their application.