Over one in five Americans claims Social Security benefits at age 62, the earliest age possible. If you plan on being one of them, then you should know that the most you can collect in Social Security income at that age this year is $2,324 per month.
Qualifying for that amount is tough, though. Social Security is based upon your historical income and pocketing the maximum at age 62 requires a 35 year work record of earnings greater than the annual payroll tax limit. That's a big ask given the payroll tax limit is $142,800 in 2021. For this reason, it's far more likely you're Social Security check at age 62 will be smaller than the maximum, making it more attractive to wait until full retirement age or later to claim benefits.
IMAGE SOURCE: GETTY IMAGES.
Claiming early means a big penalty
Yes, you can claim Social Security as early as age 62, and there are good reasons why many retirees choose to do so. For some, claiming younger allows for a more active lifestyle and for others with health complications, it could be the best strategy to collecting the most possible in lifetime benefits.
Claiming early comes at a steep cost, though. Social Security's income calculation is designed to replace about 40% of the average person's pre-retirement income, but that's only true if the recipient waits to claim benefits at full retirement age (FRA), which ranges between age 66 to age 67 for Americans born after 1954. If you file for your benefits at age 62, you could see up to a 30% reduction in your monthly benefit amount because of the early filing penalty.
| Claim At Age 62 Benefit Reduction Amounts | |
|---|---|
| Full Retirement Age | Reduction |
| 66 | 25% |
| 66 and 2 months | 25.83% |
| 66 and 4 months | 26.67% |
| 66 and 6 months | 27.50% |
| 66 and 8 months | 28.33% |
| 66 and 10 months | 29.17% |
| 67 | 30% |
DATA source: SOCIAL SECURITY ADMINISTRATION.
The trick to getting the maximum at age 62
To qualify for the biggest possible payout at age 62, you need to accomplish a couple things. First, you need to have a 35-year work history with income subject to payroll taxes and second, you need to have income at or above the payroll tax limit in each of those years.
Why? Because Social Security determines your monthly benefit by adjusting your highest 35 years of income for inflation and then, calculating your average earnings over that period. Work fewer than 35 years and Social Security uses zeros in its calculation for those years, preventing you from qualifying for the maximum benefit. Similarly, earn less than the maximum subject to payroll tax during each of those 35 years and you won't qualify either.
If you can be flexible, patience pays off
In 2021, the maximum amount you can get in benefits if you claim at age 62 is $2,324, but if you qualify for the maximum and your full retirement age is 66, then waiting until then to begin your benefits entitles you to $3,113 per month. That's a big increase for waiting five years or less to file for Social Security.
Your patience nets you even more money if you can wait until age 70 to claim because of delayed retirement credits. These credits bump up your benefit amount by 2/3 of 1% for every month beyond your FRA you delay, up to age 70. That works out to an 8% annual reward just for being patient. For perspective, the maximum Social Security for those age 70 claiming Social Security this year is $3,895, which is 67.6% higher than the maximum payable to somebody claiming this year who is age 62.
| Maximum Social Security if You Retire in 2021 | ||
|---|---|---|
| Age | Per Month | Per Year |
| 62 | $2,324 | $27,888 |
| 66 | $3,113 | $37,356 |
| 70 | $3,895 | $46,740 |
DATA SOURCE: SOCIAL SECURITY.
Of course, when to claim Social Security is a personal decision that depends on your health, retirement goals, sources of retirement income, and expenses. However, if you want the maximum Social Security possible, holding off could make more sense than claiming at age 62, even if you don't qualify for the biggest monthly benefit.
