Most people can start collecting Social Security checks when they turn 62. But there are big financial rewards for those who wait: Americans who hold off until they’re 70 to claim Social Security benefits can expect to increase their lifetime payout by over $180,000, according to a new study.
While some people would only gain a few thousand dollars by delaying until age 70, those at the high end would gain about $900,000 over the course of their retirement by waiting, according to a National Bureau of Economic Research paper by authors at Boston University and the Federal Reserve Bank of Atlanta.
The paper says the median loss in lifetime discretionary spending for those who don't wait until 70 is $182,370.
“Social Security is a critically important component of retirement-income security," the authors wrote. "Unfortunately, hundreds of millions of workers are making arguably highly inappropriate collection decisions — decisions that significantly reduce their lifetime Social Security benefits and, consequently, their lifetime spending.”
If you wait to claim benefits, the monthly amount you receive increases. At the same time, however, waiting long to start collecting Social Security will decrease the total number of payments you get paid before death.
In a studied group of American workers age 45 to 62, the paper found that nearly all would get more in their lifetimes if they wait to collect benefits until at least age 65.
More than 90% of those people should wait until age 70 to claim their benefits, the study's authors say. In reality, only 10.2% wait that long, which means most Americans are losing out on money by claiming benefits early.
Financial benefits of waiting to claim Social Security
The analysis found that there's a large range in how much more money people would get out of the program by waiting until age 70 to claim benefits.
Roughly 10% of those who wait would receive no increase or even lose money compared to collecting earlier. One-quarter of those who wait would net an increase of about $65,000 over their lifespans, while at the high end another quarter would take home upwards of $290,000 extra.
Social security benefits can be claimed starting at age 62, but the monthly benefit amount increases each year you wait beyond that. For people born in 1960 or later, 67 is the age when you can claim “full” retirement benefits, but there’s the option to delay another three years to get further increases of 8% per year. At 70, the maximum age to start claiming Social Security, benefits are 24% larger than if you claim at age 67.
By taking benefits at age 62, people born in 1960 get 30% less in monthly benefits than if they wait until 67. You can find the math for different birth years on the Social Security Administration website. Starting in 2023, the average monthly Social Security benefit payment will be $1,827 when a 8.7% cost of living increase kicks in to adjust for inflation, according to government data.
Based on how Social Security benefits are structured, beneficiaries who end up living to an old age get paid more if they wait to claim their benefits. But for someone who dies at age 68, for example, they would hardly get any Social Security benefits if they had waited until age 67 to claim benefit. In fact, they would receive less Social Security money in the grand scheme than if they had started started collecting checks at age 62.
Employees and employers pay into the Social Security program at a rate of 6.2% of a worker’s wages, up to a maximum of $147,000 per year. About 40% of retired people are at least 50% financially dependent on the retirement benefits to pay their bills, according to the paper.
The authors of the paper acknowledge that waiting until 70 isn’t the right move, or a feasible one, for everyone. The age at which you should claim benefits depends on factors including your health and the size of your benefits, which is dependent on career income — and, most obviously, when you most need the money.
You may want to consider claiming Social Security benefits earlier if waiting until you turn 70 would mean having to sell some of your retirement account investments when the market is down. Allowing your retirement investments to continue growing could be a better move than waiting for larger Social Security payments, but that all depends on market performance and how your money is invested.