Should You Start Social Security at 62, 65, or 70? This Is the Best Age for Most Retirees, According to a Statistical Analysis

The vast majority of retired workers depend on Social Security to some degree. But a recent survey from Nationwide Retirement Institute shows many Americans misunderstand how claim age affects benefits: 40% of participants incorrectly stated benefits automatically increase after full retirement age (FRA), regardless of when Social Security starts.

In truth, the decision to claim Social Security before FRA results in a permanent reduction, and the decision to claim after FRA results in a permanent increase. Workers can start Social Security as early as age 62, but they will receive the smallest possible benefit based on their lifetime income. Alternatively, workers can delay benefits until age 70, and they will receive the largest possible benefit based on their earnings history.

However, that raises an important question: If you want to maximize lifetime benefits, is it better to start Social Security early and receive smaller payments, or is it better to start Social Security later and receive larger payments? The National Bureau of Economic Research published a study in 2022 that suggests most Americans shortchange themselves.

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Starting Social Security too early will cost the median household an estimated $182,000

In November 2022, The National Bureau of Economic Research (NBER) published a paper titled How Much Lifetime Social Security Benefits Are Americans Leaving on the Table?

The study gathered data from the Federal Reserve's Survey of Consumer Finance, and ran the numbers through a program twice. The first pass established a baseline, meaning an estimate of lifetime spending power based on current claiming patterns. The second pass optimized the variables, meaning it adjusted decisions to maximize benefits and lifetime spending power.

That let the authors identify the age at which claiming Social Security would maximize lifetime spending power for most individuals, and the financial effect. The authors concluded that most people start Social Security too early. Among households headed by workers aged 45 to 62, the median loss in lifetime spending power will be over $182,000 (in 2022 dollars) if current behavioral patterns persist.

Most retired workers will maximize lifetime benefits by claiming Social Security at age 70

Last year, nearly one-quarter of new retired-worker beneficiaries claimed Social Security at age 62, and nearly half of them claimed Social Security before age 66. Those individuals have very little chance of maximizing their lifetime spending power.

Almost all workers age 45 to 62 should wait beyond age 65 to collect Social Security, and over 90% should wait until age 70, according to the NBER statistical analysis. Put differently, if the goal is to maximize spending power, almost everyone should claim Social Security after age 65, and the vast majority of people should wait until age 70.

As mentioned, among households headed by workers aged 45 to 62, failure to optimize Social Security benefits will result in an estimated median loss in lifetime spending power of more than $182,000 (in 2022 dollars).

Personal circumstances should play a role in determining when to start Social Security

When to start Social Security is a decision best made with help from a financial advisor. It would be an oversimplification to say one age is better than another in all situations. In reality, the decision depends on personal circumstances and goals. For instance, the statistical analysis discussed assumes a typical lifespan, so the conclusion is irrelevant for anyone with a below-average life expectancy.

Additionally, the decision to maximize benefits often requires people to live below their means between retirement and the onset of Social Security, or else it forces them to delay retirement. Some people would happily exchange a percentage of lifetime spending power for a consistent standard of living or the ability to retire early. That is a personal decision. There is no right or wrong answer.

However, if the goal is to maximize lifetime spending power, virtually everyone should claim Social Security after 65, and the vast majority of people should claim Social Security at age 70.

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