Social Security benefits are calculated based on two factors: a person’s thirty-five highest-paid years in the workforce, and the age at which they claim their benefits. The first of these factors is straightforward, and every American has a strong incentive to simply include their highest-paid years to maximize their benefit.
The second factor, on the other hand, can be complicated. While most retirees are eligible for their full benefits at “full retirement age” (FRA)—usually sixty-six or sixty-seven—the Social Security Administration offers them some leeway in terms of deciding when to claim them. Anyone can claim their benefits several years early, at sixty-two, for a penalty in accepting them. Conversely, by waiting until age seventy, people can increase the amount they ultimately receive by around thirty percent.
Most financial planners advise Americans who can afford it to wait, as this decision usually pays off in the long run. However, there are two main reasons that it might make sense to accept the penalty and claim the benefits early, at or around sixty-two.
The full retirement age has shifted as the average retirement age in the United States has gone up. People turning sixty-six this year will be able to claim their full benefits at that age; in the future, the FRA age will be raised to sixty-seven, and thereafter presumably higher.
But working until age sixty-seven is not in the cards for everyone, and filing for Social Security early can give elderly Americans more time to enjoy retirement—as long as they have already saved money during their career. The average Social Security benefit is roughly $1,500 per month at FRA age; at age sixty-two, this drops to $1,050 per month, below the poverty line.
Aversion to Risk
There is a morbid but salient reason that many Americans choose to claim their benefits early: they are not certain how much longer they will live and want to claim as much money as possible while still alive.
The average life expectancy in the United States is around seventy-eight years. Many Americans live longer lives, of course, but many also live shorter ones. If anyone is unsure of how much longer they will live—particularly if they have any pre-existing medical conditions or a family history of disease—claiming benefits early could ultimately be the responsible choice.
Ultimately, claiming Social Security early is not the right decision for many Americans. For those who have not already saved for retirement, filing for Social Security at age sixty-two is simply the wrong decision. For those who have deposited in retirement savings accounts, such as 401(k) plans and Roth IRAs, though, enjoying a few more years of retirement could ultimately be more rewarding than a slightly larger monthly payment.
Trevor Filseth is a current and foreign affairs writer for The National Interest.
Image: Social Security Administration