Unsure When to Claim? Here are the Break-Even Ages for Social Security Benefits

When you begin claiming your Social Security benefits is one of the most important decisions you will make. Knowing when to start your benefits—and when not to—could mean thousands of more dollars to you, and your surviving spouse, when you could use the income the most.

But with so many claiming possibilities, when is the right time? 

You probably have heard arguments for claiming early and waiting. That being said, it pays off to understand the break-even ages for Social Security benefits, their impact, and how different claiming ages may compare.

What’s Your Full Retirement Age?

Social Security benefit calculations are based on your Full Retirement Age (FRA), determined by the year you were born. When you reach your Full Retirement Age, you become eligible for full Social Security benefits.

Born between 1943-1954? Your FRA is 66. Born in 1960 or later? Your full retirement age is 67. Those born between 1955 and 1959 have a FRA somewhere in between. As long as you wait until your FRA to elect Social Security, you will get the full benefit payments you’re entitled to collect.

But every year you delay after FRA, you earn delay credits, increasing your monthly benefit for the rest of your life, and maximizing the benefit available to your spouse at your passing. (This assumes your surviving spouse has a benefit less than yours.)

Yet many Americans may be missing the boat on maximizing their Social Security payout. According to a recent study from the Center for Retirement Research, 42% of all men and 48% of all women started claiming their Social Security benefits at age 62, the youngest age anyone can start claiming benefits.

This can result in a significant reduction in benefits. If you start claiming at age 62 when your FRA is 67, retiring 60 months early would mean a 30% reduction in benefits.

Calculating Your Social Security Break-Even Age

What’s the age at which, if you live to—and past—that milestone, you’ll be better off choosing a later claiming date? It’s easier to understand your Social Security break-even age, and its impact, if we do the math. Let’s consider a simple example to kick things off.

If your FRA is 65 and you elect to begin receiving Social Security income at age 62, your FRA benefit of $1,000 is reduced by 20%, leaving you with $800 each month. Someone who shares your birthday and earnings history, let’s call them your “twin”, but who elects to start taking benefits at FRA, gets $1,000 each month.

For the first three years, you receive $28,800 while your twin receives nothing. Once your twin starts receiving benefits, he or she receives $200 more each month, or $2,400 more annually than you do. So, the Social Security break-even age is 77, or 15 years after you elected to receive benefits. After this point, your twin earns more over his or her lifetime than you do.

To determine break-even ages and understand the impact of potential claiming strategies, consult these helpful charts, courtesy of original content created by Jim Blankenship, CFP, EA, of Blankenship Financial Planning, Ltd. Mr. Blankenship is a published expert on Social Security benefits, having authored the work “A Social Security Owner’s Manual.”

To use this graph, locate your first filing age on the left-hand side of the table. Then move right to the second filing age you may be thinking over. This graph shows approximate break-even points between the various filing ages that are possible.

So, say we were looking at 62 for our early filing age and 66 for our later one. The break-even point for filing at age 62 versus age 66 would be approximately age 78. Likewise, age 66 versus age 70 would have a break-even point of age 82.

In this graph, the break-even points are the age when your cumulative benefits received at the later filing age exceed your cumulative benefits received at the earlier filing age. Also, the break-even points are mapped on a yearly basis. That means that a break-even point will be one of any of 12 months in the year specified. It’s important to keep that in mind as you evaluate the outcomes of different filing ages here.

Now, let’s look at what the break-even points would be when someone’s Full Retirement Age is 67. Just like before, start on the left with your first filing age. Then move right to the second filing age under your consideration.

So, the estimated break-even point for claiming at age 62 versus 67 would be 78. Between ages 67 and 70 would be a break-even point of age 83.

If you have further questions about Social Security benefits check out this article.

When Might Claiming Early Make Sense?

Taking benefits early means you will receive monthly Social Security checks for a longer time. However, your benefits will be permanently reduced. On the other hand, taking benefits past FRA means fewer monthly paychecks over your retirement lifetime. But the credits for your delay will make each monthly check bigger.

People may have good reasons for filing at age 62, knowing they are reducing their potential Social Security income. Some may have a family history of serious medical conditions. Or they may have their own health issues that cast their longevity into doubt. There may be no other income sources available.

If a non-working spouse needs to claim on their earnings record, they may consider filing early. This is also true for those with a guaranteed source of income with an employer pension.

Because of the Windfall Elimination Provision, workers who have worked in both the public and private sectors and who receive a pension from their public employment, could see a reduction—or complete elimination—of their Social Security check. Claiming before your pension kicks in can give you a few years’ worth of benefits before the axe falls.

Reasons for Taking Benefits Later

Apart from higher monthly paychecks, there may be other reasons that people put off taking their benefits early. If you are still working, claiming benefits before your FRA comes with earnings restrictions. 

If you are under Full Retirement Age for the entire duration of the year you take benefits, the annual limit for earnings is $17,040 in 2018. For every $2 you earn above that limit, $1 is slashed from your benefits. The same goes for when you start benefits in the year of FRA, but not quite the precise period at which you attain FRA and the Social Security Administration ceases earnings restrictions. In 2018, the earnings limit for taking benefits early in the year of FRA is $45,360.

For every $3 you earn above that limit, $1 is deducted from your benefits. Some special conditions apply if you will be retired for part of the year. You can find more information about this on the Social Security Administration website.

Ready for Personal Guidance with Your Social Security Claiming Strategy?

In summary, you can start your retirement benefit at any point from age 62 up until age 70. Your benefit will be higher the longer you delay starting it. This adjustment is usually permanent and sets the base for the benefits you’ll get for the rest of your life. You’ll get annual cost-of-living adjustments and, depending on your work history, may receive higher benefits if you continue to work. 

Waiting lets you enjoy more benefit payouts over time by taking a Delayed Credits Claiming Strategy. Be sure to plan this wisely with the other parts of your retirement plan, as life expectancies increase, people spend more, and the need to have sufficient income for many years takes on more weight.

If you are ready for guidance on creating a plan that emphasizes income certainty, protection, risk management and Social Security maximization – or you need a second opinion of your existing strategy – the financial professionals at SafeMoney.com can help you.

Use our “Find a Financial Professional” feature to connect with someone directly. Should you need a personal referral, please call us at 877.476.9723.