Statistically, This Is the Best Age to Claim Social Security Benefits -- and It's Not Even Close

For most retirees, Social Security provides more than just a monthly payout. The Social Security income they receive serves as a financial foundation that helps up to 90% of retirees make ends meet, according to a quarter-century of annual Gallup surveys.

Getting as much as possible out of Social Security isn't just a luxury -- it's a veritable necessity for some aging workers. But for retirees to maximize what they'll receive from America's leading retirement program, they'll first need to understand the nuts and bolts of how their monthly benefit is calculated. This includes grasping the importance of the Social Security claiming age, which can significantly impact monthly and lifetime payouts.

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Four variables are used to calculate your monthly Social Security check

Though not all aspects of Social Security are easy to understand, the four variables taken into account by the Social Security Administration (SSA) to calculate your monthly benefit are straightforward:

1. Work history
2. Earnings history
3. Full retirement age
4. Claiming age

The first two variables on this list are intertwined. When calculating your monthly benefit, the SSA will account for your 35 highest-earning, inflation-adjusted years of work history. To some extent, this means that a higher average wage or salary over your lifetime can translate into a larger monthly Social Security benefit in retirement.

But the caveat to the above is that retirees are penalized if they have fewer than 35 qualifying years of work history. For every year worked less than 35, the SSA will average a $0 into the calculation. Thus, if you want to maximize your monthly payout, you'll need to work a minimum of 35 years.

The third factor, your full retirement age, is the one variable you can't control. It's based on your birth year and represents the age at which you're eligible to receive 100% of your monthly retired-worker benefit. For beneficiaries born in or after 1960, the full retirement age is 67.

The final variable, your claiming age, is arguably the most important. While retired-worker beneficiaries have the option of initially collecting their benefit at age 62, there's a financial incentive to be patient. As you'll note in the table below, for every year a worker waits to collect their payout, starting at 62 and continuing until 70, their monthly benefit can grow by up to 8%. This means early filers are permanently accepting a 25% to 30% monthly payout reduction, while age 70 claimants can receive 24% to 32% more per month than what would have been paid at full retirement age.

Data source: Social Security Administration.

Statistically, one Social Security claiming age is superior to others at maximizing lifetime income

While the table above clearly shows the effects of collecting early versus waiting, it doesn't provide insight into which initial collection age offers the highest probability of maximizing lifetime income. Getting as much as possible out of America's top retirement program, regardless of the monthly payout, is the ultimate goal.

To be upfront, there isn't a one-size-fits-all diagram to follow to ensure you'll make the best possible choice for your situation. Since we all walk unique paths toward retirement, everyone's combination of financial needs, tax liabilities, marital status, personal health, and so on, will differ.

Additionally, none of us knows our "expiration date" in advance. Without this key piece of information, there's always going to be some guesswork involved when claiming Social Security benefits.

With this being said, a team of researchers extensively examined the claiming decisions of retirees and found one initial collection age to be superior to others at maximizing lifetime income.

In 2019, researchers at online wealth management platform United Income published The Retirement Solution Hiding in Plain Sight. This report used data from the University of Michigan's Health and Retirement Study to extrapolate the claiming decisions of 20,000 retired-worker beneficiaries to determine how many optimized their payout (i.e., maximized their lifetime benefits).

Given the unknowns described above, it shouldn't be all too surprising that just 4% of the 20,000 retirees examined had maximized their Social Security income.

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The far more important finding from United Income was the near-perfect inversion between actual and optimal claims.

A whopping 79% of retirees began collecting their monthly benefits at ages 62, 63, or 64. But United Income's analysis showed that only around 8% of combined claims from 62 through 64 would have been optimal.

At the other end of the claims spectrum, very few of the 20,000 claimants studied waited until age 70 to begin collecting their retired-worker benefit. However, United Income's model found that 57% of these 20,000 retirees would have optimized their lifetime Social Security income by claiming at 70.

To put this figure into perspective, the second most-optimal claiming age, according to United Income, is 67 -- and only around 10% of claimants would have maxed out their lifetime income by initially collecting at what's now Social Security's full retirement age.

But just because age 70 is statistically superior to all other claiming ages, it doesn't mean every future retiree will benefit from waiting. There are still several logical reasons for aging workers to collect their payout well before 70. For example, if you're in poor health and don't expect to live into your 80s, collecting earlier makes sense.

Nevertheless, United Income's report makes clear that, statistically, one claiming age is far superior to the rest. A majority of future retirees would be wise to consider waiting to collect Social Security if they want to maximize what they'll receive over their lifetime.

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