If I Could Tell All Retirees 1 Thing About Social Security, I'd Say to Do This Before You Claim Benefits

Social Security has been one of America's staple social programs for decades. For sure, there are areas that could use some improvement, but overall, it's hard to argue with how valuable it has been in keeping many retirees afloat financially. That's why the age when you claim Social Security is one of the bigger retirement decisions many people make.

Your primary insurance amount (PIA) is your base monthly benefit that you'll receive by claiming benefits at your full retirement age. However, you can choose to claim before or after your full retirement.

Each choice has its pros and cons, but before making the decision, I recommend finding out your break-even age. It's one metric that can help in your situation. And considering that when you claim will permanently affect our benefit amount, it's one you shouldn't gloss over.

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How your claiming age affects your monthly benefit

Before discussing the break-even age, it's important to understand how your benefits are affected by when you claim.

Claiming benefits before your full retirement age reduces them by 5/9 of 1% monthly for the first 36 months. Each additional month further reduces benefits by 5/12 of 1% monthly. Assuming your full retirement age is 67, here's how much your monthly benefits could be reduced by based on claiming age:

Table by author.

Delaying benefits past your full retirement age has the opposite effect, increasing by 2/3 of 1% each month after your full retirement age until you turn 70. This works out to an 8% annual increase in benefits.

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Figuring out your break-even age

In Social Security, your break-even age is when the total benefits received from claiming at one age equals those from claiming at another age. The main purpose of knowing your break-even age is to decide whether claiming early and receiving a reduced benefit, or claiming late for an increased benefit, is worth it.

To see the break-even age in action, let's assume your PIA is $2,000, your full retirement age is 67, and you're deciding whether to claim benefits at 62 or 70. At those ages, your monthly benefits would be $1,400 and $2,480, respectively.

There are 96 months between the ages of 62 and 70, so you'd receive $134,400 in benefits ($1,400 per month * 96 months) before reaching 70 if you claimed at 62. At 70, your benefit would be $1,080 more than claiming at 62, so you'd need to see how many months of receiving that much more it would take for your benefits to be the same from claiming at both ages.

Between 62 and 70, the break-even age is right around 80.4. At this age, you would have received a total of around $308,500 from claiming at 62 and 70: (220.4 months * $1,400) and (124.4 months * $2,480).

The good news is that the break-even age between any two ages will remain the same regardless of the monthly benefit. If you're deciding between 62 and 67, the break-even age is around 78.7; if you're deciding between 67 and 70, it's around 82.5.

Make break-even age one piece of the equation

Your break-even age should be an important part of your Social Security claiming decision, but it's best used when supplemented with other factors.

For example, if you or your family have a history of health issues, it may be wise to claim Social Security earlier to ensure you have more time to use your benefits. Or, if you have sufficient retirement income from sources like a 401(k) or investments, delaying benefits may make more sense because you don't need the Social Security payments for survival.

Whatever your situation, try to approach your Social Security claiming decision holistically. There's no right or wrong choice; just the choice that works best for you.

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