The most popular and the best don't always go hand in hand. For example, millions of Americans eat at fast-food restaurants every day. However, the food they buy pales in comparison to what's on the menu at a Michelin five-star restaurant.
Sixty-two is the most popular age to claim Social Security retirement benefits. But what's the best age to claim? Here's what statistics say.
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Leaving $3.4 trillion on the table
In 2019, online investment management and financial planning company United Income published a report titled, "The Retirement Solution Hiding in Plain Sight: How Much Retirees Would Gain by Improving Social Security Decision." The authors of the study, which included a former chief economist and a former research director with the Social Security Administration (SSA), concluded that "retirees will collectively lose $3.4 trillion in potential income that they could spend during their retirement because they claimed Social Security at a financially sub-optimal time."
What did the United Income researchers determine was the best age to claim Social Security? It wasn't 62. Instead, they found that 92% of Americans would be better off holding off until at least age 65 to claim Social Security retirement benefits, and 71% would be better off waiting until age 70.
Those findings shouldn't be surprising. SSA imposes a steep penalty for collecting benefits before a person's full retirement age (FRA), which is 67 for anyone born in 1960 or later. The agency will reduce benefits by five-ninths of 1% for each month before the FRA, up to 36 months. If the number of months is greater than 36, benefits are reduced by five-twelfths of 1% per month. A person whose FRA is 67 and who claims Social Security at 62 would have their benefits reduced by 30%.
On the other hand, SSA pays more for those who wait past their FRA to claim benefits. Anyone born after 1943 will receive two-thirds of 1% per month for delaying their benefits until they reach the age of 70. That can translate to 24% higher Social Security benefits.
Expected longevity factors into the equation of the optimal age to claim Social Security. However, men who reach age 62 have a life expectancy of another 19 years based on the SSA's actuarial analysis. Women who reach 62 have a life expectancy of another 22 years. Statistically, most Americans who reach the earliest retirement age of 62 will live long enough that delaying claiming benefits until 70 will be financially advantageous.
A more recent study
Was the United Income finding an outlier? Nope. A more recent study conducted in 2022 by David Altig of the Federal Reserve Bank of Atlanta and Laurence Kotlikoff and Victor Yifan Ye of Boston University reached a similar conclusion.
In a paper published by the National Bureau of Economic Research (NBER), Altig, Kotlikoff, and Ye determined that "virtually all American workers age 45 to 62 should wait beyond age 65 to collect." They found that, statistically, more than 90% of retirees should hold off until age 70 to claim Social Security benefits.
Like the United Income study, the NBER analysis calculated a hefty cost for claiming Social Security benefits too soon. The researchers calculated that the median loss from collecting benefits before the optimal age was a whopping $182,370.
Statistics, schmalistics?
Just because statistics say that 70 is the best age to claim Social Security doesn't necessarily mean it's the best age for every person. If you have serious health problems and a family history that makes it doubtful you'll live past your late 70s, claiming Social Security at an earlier age might make sense.
Remember, too, that the statistical studies focus only on the financial aspect of claiming Social Security benefits. For most people, several other factors go into the decision about when to retire. It isn't just about money.
The SSA probably says it best in its publication titled "When to Start Receiving Benefits." The agency states:
At Social Security, we're often asked, "What's the best age to start receiving retirement benefits?" The answer is that there's not a single "best age" for everyone and, ultimately, it's your choice. The most important thing is to make an informed decision.
That's good advice for anyone trying to determine when to claim Social Security.
