For most Americans, Social Security is a vital source of income. It lifts more than 21.7 million people out of poverty each year, approximately 15.4 million of whom are adults over the age of 65, and nearly 9 out of 10 retirees are struggling to make ends meet in some way. This is the program I rely on. .
Given the importance of Social Security to the financial well-being of today’s retirees, getting the most out of the program is paramount. This is how Social Security benefits are calculated and how your claim age (including the possibility of waiting until age 70) can affect the amount you receive on a monthly and lifetime basis. It starts with understanding.
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These four factors determine your monthly Social Security check.
When considered broadly, there are many factors that can affect how much Social Security benefits you can keep. The potential for benefits to be taxed at the federal level and in 12 states and the penalties applicable to certain early filers are examples of how take-home benefits may be reduced.
But when you break it down, there are only four factors used to calculate your monthly Social Security check.
The first two factors, work history and earnings history, have relatively simple correlations with Social Security benefits. The Social Security Administration (SSA) considers 35 years of your highest inflation-adjusted income when calculating your monthly payments. The more he earned in his 35 years considered, the more he would receive a Social Security check in retirement.
The caveat above is that you need to work for at least 35 years. If you work fewer than 35 jobs per year, SSA calculates an average of $0, which can seriously hurt your chances of maximizing your payout.
The third factor is full retirement age. This is determined by your year of birth and represents the age at which you are eligible to receive 100% of your retired worker benefits. For people born after 1960, age 67 is full retirement age.
The fourth factor that determines how much you’ll receive from Social Security each month is your claiming age. This is the factor that can have the biggest impact on how much money you receive each month and over your lifetime.
Although benefits can be claimed starting at age 62, there’s no question that Social Security offers retirees patience. As shown in the table below, each time a retired worker holds a second job and waits to collect benefits, continuing from age 62 to her age 69, her monthly check can increase by up to 8%.
| year of birth | 62 years old | 63 years old | 64 years old | 65 years old | 66 years old |
Year 67 |
68 years old | 69 years old | 70 years old |
| 1943-1954 | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% | 132% |
| 1955 | 74.2% | 79.2% | 85.6% | 92.2% | 98.9% | 106.7% | 114.7% | 122.7% | 130.7% |
| 1956 | 73.3% | 78.3% | 84.4% | 91.1% | 97.8% | 105.3% | 113.3% | 121.3% | 129.3% |
| 1957 | 72.5% | 77.5% | 83.3% | 90% | 96.7% | 104% | 112% | 120% | 128% |
| 1958 | 71.7% | 76.7% | 82.2% | 88.9% | 95.6% | 102.7% | 110.7% | 118.7% | 126.7% |
| 1959 | 70.8% | 75.8% | 81.1% | 87.8% | 94.4% | 101.3% | 109.3% | 117.3% | 125.3% |
| Since 1960 | 70% | 75% | 80% | 86.7% | 93.3% | 100% | 108% | 116% | 124% |
Data source: Social Security Administration.
What is the average Social Security benefit at age 70?
As you can see from the payment schedule above, Pretty Monthly payments vary depending on how long the worker waits.
For example, future generations of retirees who choose to take benefits at the earliest eligible age (age 62) will see their monthly Social Security checks reduced by up to 30%. If you wait another five years until age 67, you can receive 100% of the monthly payments due. But by continuing to work for a full eight years after qualifying until age 70, a future retiree’s monthly check could be 24% larger than what they would have received at full retirement age.
How much will a 70-year-old beneficiary receive in take-home pay? Based on December 2022 SSA data, the 2,955,215 retired workers receiving benefits at age 70 will receive $1,963.48 per month, or He was taking home approximately $23,562 on an annual run rate basis. By comparison, the average monthly benefit at age 70 is about 6% higher than the average monthly check for a 67-year-old recipient, and a whopping 54% higher than the $1,274.87 monthly take-home pay for a 62-year-old senior recipient.
70 was one of the least popular claiming ages in 2022, ranking 7th out of 9 claiming ages from 62 to 70, but it has gradually become more popular in recent decades. is increasing. This trend is likely to continue as people live longer.
When Social Security began providing benefits to retired workers in January 1940, life expectancy in the United States was approximately 63 years. Currently, life expectancy at birth in the United States is over 76 years. Since people are living much longer, it’s no surprise that eligible retirees are holding back on receiving larger monthly checks.
What’s interesting about the 70-year-old claim is that statistically speaking, it may make sense for the vast majority of retirees.
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This relatively unpopular age claim is statistically a wise choice for most retirees.
To be completely fair and frank, there is no concrete blueprint that tells eligible retirees the best age to receive benefits in advance.
For example, someone in poor health is unlikely to wait a full eight years (or until age 70) to maximize their monthly benefits. Filing early may permanently reduce your monthly payments, but it may also be the way to get the most money. lifetime And it’s really important to optimize what you receive over your lifetime.
In 2019, online financial planning firm United Income published a study that analyzed the Social Security claims of nearly 20,000 retired workers using data from the University of Michigan’s Health and Retirement Study. The United Income researchers’ goal was to determine whether these claimants made the “optimal” decisions that produced the highest possible lifetime income.
What United Income found was that actual Social Security claims and estimated optimal claims were almost completely opposites of each other. Although most retirees choose to take their retirement benefits before reaching full retirement age, United Income has found that consistently waiting produces the best lifetime benefits for retirees. . Although 70 is significantly less popular than other filing ages, 70 would have been the optimal filing age for 57% of the 20,000 claimants surveyed. .
Overall, about 4 in 5 retirees likely made the best decision to collect benefits after age 67. On the other hand, only 8% of retirees made the wisest choice: collecting benefits at ages 62, 63, and 64. Combined!
Everyone’s financial, marital, and health situation is different, but statistically, waiting to claim Social Security benefits will be a wise decision for most future retirees.
