The largest group of the baby boom generation, consisting of 30.4 million Americans, will reach the age of 65 by 2030. A significant portion of this group will rely primarily on Social Security for income in their retirement years. Deciding when to claim Social Security benefits is a crucial decision, as waiting longer generally results in larger monthly checks. Retirement benefits can be claimed as early as age 62, but full benefits are typically received at age 66 or 67, depending on birth year. Waiting to claim benefits beyond full retirement age, up to age 70, can result in an 8% increase in benefits for each year waited.
Despite the potential increase in lifetime benefits from waiting to claim Social Security retirement benefits, the majority of new retirees tend to claim benefits before age 65. Understanding full retirement age is important when deciding when to claim benefits. For most individuals retiring today, their full retirement age falls somewhere between 66 and 67. The full retirement age increases steadily for those born between 1955 and 1960, eventually reaching 67 for those born in 1960 or later. Claiming benefits at age 62 results in significant penalties, with a 30% benefit cut for those turning 65 this year compared to claiming benefits at the full retirement age.
While most people are aware that early claiming results in reduced benefits, many still plan to start receiving their benefits early. Bipartisan efforts have been made to change the terminology around claiming age, referring to 62 as the “minimum benefit age” rather than “early.” It is important for retirees to consider not only the size of their monthly benefits when deciding when to claim Social Security, but also their lifetime benefits, longevity protection, and immediate financial needs. Only 8% of beneficiaries wait until age 70, the maximum age to claim benefits, despite the potential for increased financial security in retirement.
For individuals who are unable to wait years to increase their Social Security benefits, even delaying for a few months can result in higher lifetime benefit income. Ensuring that a claiming decision takes into account how it will affect spouses and dependents who may also receive benefits based on the worker’s record is important. Social Security benefits are often a crucial source of guaranteed income for retirees, and having smaller monthly checks can leave individuals financially vulnerable in their retirement years. Planning strategically around Social Security claiming can result in increased financial security and stability during retirement.
