You can begin receiving Social Security payments when you reach the age of 62, but retirees are commonly urged to wait to claim them since claiming benefits early lowers monthly income.
A retiree’s basic benefit is based on their work history, but it is only paid if they begin payments at age 65 or later. Payments will be lower initially, but more checks will be issued over time if a claim is filed before that date. A claim made after that date would result in the opposite; retirees would receive fewer payouts now, but greater ones in the long run.
If you postpone a claim, you’ll be giving up money that may be received right now in exchange for larger payments in the future. That’s why it’s so vital to do the math and determine how many of the higher payments you will need to come your way in order to make up for the income lost. In many situations, you’ll discover that it really does take a surprisingly long time for the future larger checks to compensate for all of the money you missed out on.
In 2022, the typical Social Security payment is $1,661. If you claim your retirement benefit at 62 rather than age 67 (the FRA), you will reduce your check by 30%. As a result, if you claim at age 62 instead of FRA, the average benefit will drop to around $1,163 per month. If claimed at age 70 rather than 67, the $1,661 average allowance would rise to around $2,060 per month.
Obviously, monthly payments of $2,060 appear to be more attractive. However, there is a significant exception. You will have missed out on eight years of regular payments. Passing up 96 $1,163 cheques means forfeiting $111,648 over eight years. Since you would eventually receive an additional $897 each month at age 70 after passing up the checks for 96 months, you’ll need around 124.5 monthly Social Security benefits in order for the additional $897 each month to make up for the lost amount of money.
This calculation is based on the assumption that you were on track for roughly average benefits and took payments at 70 rather than 62 years. You’d have to survive until at least 81 years old in order to break even.
Does it make sense for you to wait to claim your benefits?
If you believe you will live long enough to receive enough additional revenue to make up for all of the income you lost by putting off claiming Social Security, it makes sense to wait as long as possible to start. However, if your health is in question, a delayed claim may result in less lifetime earnings. So you would be better off beginning benefits sooner rather than later, even if it means receiving smaller payments each month.