The age you decide to start Social Security will have a tremendous impact on the trajectory of your retirement. As such, it's not a decision to be taken lightly.
Often times, it helps to follow the wisdom of the crowd, so to speak, when weighing a tough decision. Aggregating the decisions of everyone else and taking the average can often inform you to the best choice going forward.
So, it's worth considering the average Social Security claiming age and the monthly benefit they receive. They may shed some light on the biggest factors for you to take into account in your own claiming decision, and whether you should follow the crowd or forge your own path in retirement.
The age of eligibility for Social Security hasn't changed since the program's inception. You can claim retirement benefits at any age starting at 62. But more and more Americans are waiting longer to claim their benefits.
In 2008, the average retiree claimed benefits at 63.6 years old for both men and women. Ten years later, the average claiming age increased about a year to 64.7 years old for men and 64.6 years old for women. That age continues to climb.
The explanation for the rise in claiming age is simple. The program has changed.
In 1983, Congress enacted a law that began the process of raising the full retirement age, or FRA. That's the age at which you become eligible for your full Social Security benefit. The FRA increased from 65 to 66 around the turn of the millennium. It's currently undergoing the transition from 66 to 67.
Raising the full retirement age incentivizes people to wait longer to claim benefits because the penalties for claiming earlier are harsher. Someone with a full retirement age of 67 will receive just 70% of their full benefit if they claim at 62. Comparatively, someone who had a full retirement age of 65 would receive 80%. In other words, there's much more to gain by delaying benefits these days.
As such, we saw the average retirement benefit claiming age rise to 65 years old for men and 64.9 years old for women in 2022 (the most recent data available from the Social Security Administration).
Here's the average amount retirees receive when they apply for benefits
The average new retirement benefit award in 2022 was $1,938.75. Those retirees have benefited from two substantial cost-of-living adjustments (COLAs) in 2023 and 2024, and they now receive an average benefit of $2,174.86.
That's just for people who newly claimed retirement benefits in 2022. The average retirement benefit in July was less, $1,871.09, or $1,919.40 when you don't include people claiming spousal or child benefits.
It's reasonable to expect anyone claiming earlier than average to have a lower-than-average benefit, but you may be surprised to learn that even those waiting until 65 received a lower-than-average benefit. The average 65-year-old applying for Social Security in 2022 received just $1,874.56 per month. That's 3.3% below the average.
That discrepancy points to a few factors. First, people who claim earlier typically had lower earnings during their career than those who delay benefits. That's reflected in their primary insurance amounts, which are based primarily on average earnings during your career. Someone with lower earning likely couldn't save as much for retirement, increasing the need for supplemental income.
Second, the benefit of delaying accelerates over time. For those with a full retirement age of 67, their benefit increases by 5/12 of a percent of their full retirement benefit for each month they delay from 62 through 64. The next three years their benefit increases by 5/9 of a percent per month. And for the three years following their full retirement age, they can receive a 2/3 of a percent increase in their benefit for each month they delay. The accelerating curve shifts the average benefit higher than the average claiming age.
Should you follow the wisdom of the crowd?
Age 65 is often considered the standard retirement age. It's the original age you became eligible for full retirement benefits. It's also the age you become eligible for Medicare, which makes it easier to leave your job and the employer-subsidized health insurance that comes with it.
But sticking to age 65 for when to claim retirement benefits could be a big mistake for many retirees.
If you've consistently saved and invested for retirement on your own and built up enough in your accounts to retire comfortably, it will probably work out in your favor to delay your benefits until at lest full retirement age. More often than not, you'll maximize your lifetime Social Security income by delaying until age 70.
Your lifetime Social Security income is a function of your lifespan, and life expectancy data from the CDC indicates most people that live until age 62 will live long enough to receive more in benefits over their life by waiting until 70. So, unless you have a good reason to expect your lifespan will be shorter than the average retiree's, you should delay as long as possible.
A 2019 study from United Income backs up the CDC data. It found the majority of retirees would maximize their wealth in retirement by waiting until age 70 to claim benefits. The next best age, 67, would only maximize the wealth for about 10% of retirees in the study. Just 8% were better off claiming before they reached 65.
Following the wisdom of the crowd for a decision like Social Security won't work out for most Americans. That's because the decision is based on multiple factors, not just optimizing the lifetime income from Social Security. Consider your personal circumstances and whether you can afford to optimize or if you'll be better off taking a smaller benefit earlier.
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Here's the Average Age Americans Claim Social Security and the Monthly Benefit They Receive was originally published by The Motley Fool