Social Security serves as a vital lifeline for the majority of America’s retired populace. Data from the Center on Budget and Policy Priorities demonstrates that, each year, Social Security aids over 21.7 million individuals in escaping poverty, including about 15.4 million seniors above the age of 65.
Gallup, a renowned polling agency, revealed that nearly 90% of retirees count on their monthly Social Security benefits to help manage their living expenses. This underscores the indispensability of Social Security for ensuring the financial stability of elderly citizens. Hence, maximizing benefits from this program is crucial for retirees.
Key Factors Determining Social Security Payouts
For those retiring in the foreseeable future, turning 67 is poised to be a favored age for claiming Social Security due to various reasons. Yet, comprehending how Social Security benefits are determined is essential to evaluate the advantages and drawbacks of claiming at age 67. While numerous aspects influence the final amount a retiree receives from Social Security, such as early filing penalties or benefit taxation, four primary components define one’s monthly payout:
- Earnings record
- Employment duration
- Designated retirement age
- Age at which benefits are claimed
The interconnected nature of your earnings and employment duration is vital. The Social Security Administration (SSA) factors in your top 35 earning years, adjusted for inflation, to decide your monthly payout. Achieving higher earnings or not working a full 35 years can affect the final benefit amount. For instance, for every year less than 35 you work, the SSA incorporates a zero into your average.
The designated retirement age is predetermined based on your birth year and defines the age at which you can claim the full benefit. Those born in 1960 or later have a set retirement age of 67.
Lastly, the age you decide to start receiving Social Security profoundly affects your monthly and lifetime payouts. Interestingly, beneficiaries are incentivized to delay their claims, as their monthly benefits can grow up to 8% annually from age 62 to 69.
The Significance of Age 67 in Claiming Benefits
Age 67 is particularly crucial for those born in 1960 or later. Claiming before this age can lead to a sizable reduction in monthly benefits—up to 30%. On the flip side, those claiming at 67 receive their full entitlement. In 2022, approximately 1 out of every 7 new retiree claims was made at age 67.
So, what can a 67-year-old beneficiary anticipate in terms of payout? December 2022 figures from the SSA indicate that beneficiaries at this age averaged monthly checks of $1,844.83 or about $22,138 annually. This amount is considerably higher than the average payout for those claiming at age 62.
The trend of claiming at age 67 is expected to grow, given it is the full retirement age for a significant portion of current workers. Additionally, most disability benefit conversions to retirement benefits will occur at this age due to the designated retirement age.
Optimal vs. Popular Claiming Ages
While age 67 may seem like a balanced choice for many, offering a decent monthly payout without the extended wait, it might not always be the most financially savvy option. A study by online financial planner, United Income, assessed around 20,000 retirees’ claiming decisions. This analysis aimed to discern if these choices maximized lifetime Social Security benefits. Interestingly, while most retirees claimed before their full retirement age, the optimal claiming age for the majority was at or beyond this age.
United Income’s study revealed that age 70 was the best claiming age for 57% of the participants, maximizing their lifetime benefits. By contrast, only 10% would have optimized their lifetime benefits by claiming at age 67. Hence, while claiming at 67 has its merits, data suggests waiting till age 70 might be even more beneficial for many retirees.