Saving for retirement has changed dramatically since 1940, when the U.S. government started sending out the first monthly Social Security checks. Back then, employers often offered pensions to help employees save for their retirement.
Today, fewer employers provide pensions, and most Americans are responsible for saving through personal accounts like 401(k)s and IRAs.
However, Social Security remains one of the most important sources of income for retirees. A recent Gallup poll revealed that nearly 60% of retirees depend on Social Security as their main source of income.
This means it’s vital to understand how Social Security works and how to make the most of it, especially since the system hasn’t changed much since the 1980s.
Changes to Social Security and Their Impact
Over the years, Social Security has undergone many changes, but some quirks in the system have created opportunities for retirees to benefit more than they might expect.
Originally, Social Security was designed to give people a similar amount of lifetime benefits, no matter when they started collecting.
However, in 1983, changes were made based on life expectancy predictions. These changes made it more beneficial for people to wait until they were older to claim their benefits.
Unfortunately, predicting how long someone will live is challenging, and the government’s estimates weren’t always accurate. As a result, there are still some opportunities to maximize benefits if retirees understand how the system works.
Key Factors Affecting Social Security Benefits
The amount you receive from Social Security is determined by your Primary Insurance Amount (PIA), which is based on your past earnings.
Another important factor is your Full Retirement Age (FRA), which is the age when you can start receiving full benefits. For those born between 1943 and 1954, the FRA is 66 years old, and for people born in 1960 or later, the FRA is 67 years old.
The age at which you claim your benefits significantly impacts your monthly payments. If you decide to claim Social Security at age 62, you will receive a reduced amount.
On the other hand, if you wait until age 70, you will receive the maximum monthly payment. However, waiting until age 70 means you’ll have to live long enough to “catch up” with those who started claiming earlier.
Understanding Breakeven Ages
To help retirees decide when to claim their benefits, it’s useful to look at “breakeven” ages. A breakeven age is the point at which someone who waited to file for Social Security starts receiving more total benefits than if they had filed earlier.
One way to estimate the best time to claim Social Security is by looking at life expectancy tables from the CDC. Updated in November 2023, these tables give a better idea of how long retirees can expect to live.
For example, someone who is 62 today can expect to get more from Social Security by waiting until they are closer to their full retirement age or even age 70. As a retiree approaches 70, they may find that claiming earlier becomes a better option.
Impact of Life Expectancy on Social Security
New data shows that the average 70-year-old can expect to live to about 85 years and four months. Based on this data, most people will get the most from their lifetime Social Security benefits by waiting to claim until they are about 70.
However, the CDC’s life expectancy estimates still reflect the impact of the COVID-19 pandemic, which caused a temporary drop in life expectancy.
If life expectancy continues to rise, waiting until age 70 to claim Social Security is likely the best option for most people—unless they are concerned about living a shorter life.
Understanding Social Security is crucial for retirees who want to make the most of their benefits. By considering factors like life expectancy, breakeven ages, and the impact of delays, retirees can maximize their lifetime benefits.
Though it may seem complicated, the key to making the right decision is to carefully weigh the pros and cons of claiming early versus waiting longer.
1. What is the best age to start Social Security?
The best age to start Social Security is typically 70. This is when you will receive the highest monthly payment.
2. What happens if I claim Social Security before 62?
You cannot claim Social Security benefits before age 62. If you claim benefits at 62, your monthly payments will be reduced.
3. Can I claim Social Security after age 70?
No, Social Security benefits do not increase after age 70. There is no financial benefit to delaying past 70.
4. How does life expectancy affect Social Security?
Life expectancy plays a role in deciding when to claim benefits. If you expect to live longer, waiting until age 70 can give you higher benefits.
5. What is the “breakeven” age?
The breakeven age is when delaying Social Security until a later age results in higher lifetime benefits compared to claiming earlier.
