If you’re concerned about how to maximize Social Security benefits, you’re in good company. Many financial experts host podcasts or write books and newsletters about how to maximize Social Security benefits in retirement.
The decision about when to claim your retirement benefits is perhaps a tricky subject. Perhaps you’re asking “Should I wait until my Social Security Full Retirement Age (FRA) to get larger monthly benefit checks through retirement?” or “Should I accept the lower benefit option and claim early retirement benefits on my 62nd birthday?”
Let’s review what your Social Security retirement benefits might look like at early retirement, FRA, or late retirement to help you make the best decision.
Maximizing Social Security Retirement Benefits: Early, FRA, or Late Options
You can decide to claim benefits as early as age 62, at your Full Retirement Age, or any age thereafter (late retirement). FRA varies according to your birth year. Today, your FRA will vary between the ages of 66 and 67. If you don’t already know your FRA, learn more at “Find Your Full Retirement Age” at the SSA.gov site:
If you request retirement benefits early at age 62, you’re in good company. About 40 percent of Social Security beneficiaries claim early retirement when they’re 62. Note that if you take this option, your benefits will be lower than if you waited to reach FRA. Older people lose up to 25 percent less. Younger beneficiaries born in or after 1960 lose up to 30 percent (in 2022) by claiming early benefits.
If you claim retirement benefits at FRA, know that you’re actually incentivized to wait longer—to late retirement—by SSA.
If you claim retirement benefits after you reach FRA, up until age 70, your retirement benefits increase by 8 percent per year. Note that in today’s low interest rate environment, it’s challenging to find an investment that will reliably increase at 8 percent.
Maximizing Your Retirement Benefits by the Numbers
Everyone’s maximize Social Security retirement income is different. SSA uses a statutory formula to determine your unique Social Security retirement benefit.
The most important variable to consider, other than your 35 highest income years, is the age at which your request Social Security retirement benefits:
Let’s say you reach FRA at age 66. You claim Social Security benefits at that time and learn you’ll receive USD 21,180 per year.
In comparison, if you make the decision to request early retirement benefits from Social Security, your benefits letter says you’ll earn approximately USD 15,885 in the first year of retirement and every year after that. What a different four years makes in this example.
Now, let’s say you’re willing to work until age 70. You’re in good health and realize it’s a great idea to put the next four years to use. You continue to earn a salary, pick up a part-time job, save more of your income, or all of the above. When you retire on your 70th birthday, Social Security retirement benefits reach USD 28,000 a year. That’s 87 percent more in monthly retirement benefits than you’d receive at age 62.
Now, let’s consider your life expectancy according to Social Security.
Maximum Retirement Benefits and Life Expectancy
Many people are living longer in retirement but, of course, not everyone does. It’s important to carefully access your personal health factors, such as chronic illnesses, and your family’s tendency to live long or die young:
If you claim early retirement (retire at age 62) and live another 13 years, you’d receive about USD 206,505 in total retirement benefits.
If you wait until FRA and die at age 75, about nine years, you’d receive about USD 190,620 in total Social Security retirement benefits.
If you wait until you’re 70th birthday, you receive less Social Security benefits of about USD 140,000 if you die at age 75.
Now, let’s assume you live to age 85. If you retire early, you receive about USD 365,355 in retirement benefits over 23 years. You’ll receive more Social Security income if you wait until your FRA (about USD 402,420) or late retirement at age 70 (USD 420,000). Of course, the amount you receive over time will depend upon any cost of living (COLA) additions to your Social Security retirement benefits.
Read “Early or Late Retirement?” at SSA.gov to make your best guess about when to retire. Statistics show that, for most future Social Security retirement beneficiaries, it pays to wait. Your benefit declines about five-ninths of a percent per month until FRA, up to 36 months.