The old saying that timing is everything couldn’t be more true than when you’re talking about the best time to take Social Security!
Study: Claiming Social Security too early could cost you $100,000+
A new study from United Income, a technology wealth management company, finds that for most people it’s not really a question of if you’ll be able to retire, it’s a question of when. And unfortunately, too many workers arrive at the wrong answer.
Their research shows 57% of retirees would be better off claiming at age 70. Most people, however, claim at age 62, which is the earliest you can take Social Security. But taking it so early means you only get a partial benefit. By waiting, you get a buildup in benefit of about 8% every year until your benefit caps out at 70.
Here are some other findings from the United Income research:
- $111,000 is the average income per household that you forfeit by claiming Social Security too early
- Claiming at the wrong age means forgoing $68,000 in estimated wealth
- Only 4% of retirees claim at the optimal time
Using Social Security calculators to figure out the best time to claim
There are a lot of reasons why people may not be able to wait until 70 to start taking Social Security. These can include health issues, the inability to find work and even overwhelming debt.
If you can’t wait until 70, it’s best to at least wait until your full retirement age to claim your benefit. Click here to find your full retirement age.
Meanwhile, there are a lot of free calculators available to help figure out the best time to take Social Security based on your individual circumstances.
Official calculators from the Social Security Administration
- Retirement Estimator – Offers estimates of your benefit based on your actual Social Security earnings record
- Quick Calculator – Shows your benefit estimate in either today’s dollars or inflated future dollars
- SSA Online Calculator – Crunches your annual earnings from 1951 to 2018 to give a detailed projection
- Detailed Calculator – This one is strictly for retirement wonks, as it “produces the “primary insurance amount” (PIA), “maximum family benefit”, the actuarial reduction or increment factor (for early or delayed retirement), and the monthly benefit amount (MBA)”
- Fidelity Investments Social Security calculator
- AARP’s Social Security calculator
- Target Your Retirement calculator (from Boston College’s Center for Retirement Research)
- Maximize My Social Security calculator (requires $40 annual household license fee)
Running a projection
So, the general guidance is for you to start taking your Social Security benefits later rather than sooner. But if you’re 62 and don’t have a job or the possibility of any future income, then you’d probably want to take Social Security as soon as possible.
But for detailed guidance, your best bet is to try one of the calculators listed above. We ran a couple of scenarios using the Fidelity calculator to determine when a married 60-year-old man making $80,000 annually should start taking Social Security:
|Age||Expected longevity||Lifetime benefit|
|62 (earliest you can claim)||living into your 90s||$691,416|
|66 (full retirement age)||living into your 90s||$828,580|
|70 (when your monthly benefit maxes out)||living into your 90s||$926,100|
In this scenario, it would make sense to wait to claim to maximize your lifetime benefit. If you don’t wait — instead taking your benefit as early as you can — you could miss out on an estimated $234,684!
However, the opposite is true is you don’t have a lot of longevity in your family and only expect to live to be in your 70s. Using the same hypothetical worker (60, male, earning $80,000), you’d be better off claiming as soon as you can:
|Age||Expected longevity||Lifetime benefit|
|62 (earliest you can claim)||living into your 70s||$272,376|
|66 (full retirement age)||living into your 70s||$243,700|
|70 (when your monthly benefit maxes out)||living into your 70s||$185,220|
Under this scenario, our worker would actually lose out on $87,000 by waiting until age 70 claim — if his family tends to die earlier rather than later.
Of course, the truth is many of us will live longer than we might imagine. Let’s say you’re married. For married couples, there’s a 72% chance that one of you will make it to your 85, according to research.
The nice thing about the Fidelity calculator is that it allows you to play around with age, gender, salary, longevity expectation and marital status.
The bottom-line is that the longer you can wait to claim Social Security, the better off you’ll be — unless you know you’re genetically cursed with the likelihood of premature death in your family.
For everyone else, you should at least try to hold out until your full retirement age if you want to collect your full Social Security benefit. Meanwhile, your monthly benefit will continue to grow until age 70 if you wait to claim, at which point it caps out.
And for those who are wondering, money expert Clark Howard plans to wait until 70 to collect his maximum Social Security benefit. You can read more about that here.