Maximizing Social Security: The Importance of Delaying Benefits

A study from the National Bureau of Economic Research, released in November 2022, revealed that 90% of workers aged 45 to 62 would achieve the highest possible Social Security benefits by claiming at age 70. However, in 2023, fewer than 10% of newly awarded retirees opted to wait until that age, a trend that has persisted in prior years.

As a result, many Americans may be missing out on potential benefits by claiming too soon. Below, we explore how the timing of claims affects average Social Security payouts.

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Average Social Security Benefits by Retirement Age

The Social Security Administration publishes anonymous data on benefits to enhance public understanding. The table below, last updated in June 2024, lists the average monthly Social Security benefit for retired workers at various ages.

Source: Social Security Administration. Note: Payments have been rounded to the nearest dollar.

The data indicates that average benefits increase with age. For instance, a 70-year-old receives $294 more per month than a 66-year-old and $463 more than a 62-year-old.

While various factors affect Social Security benefits, the age at which one claims significantly influences the payout. Simply put, a retiree receives the lowest benefit at age 62 and the highest at age 70.

How Social Security Benefits are Calculated

The amount a retiree receives from Social Security is determined by three main factors: lifetime earnings, full retirement age, and claim age. Here’s how these components are factored in:

• Step 1: The worker’s primary insurance amount (PIA) is calculated using the inflation-adjusted earnings from their 35 highest-paid years.
• Step 2: The PIA is adjusted based on whether the worker claims benefits early or delays their claim. Claiming before full retirement age results in a reduced benefit, while delaying increases the benefit.

It’s essential to note that benefit eligibility starts at age 62, and credits for delayed retirement cease at age 70, meaning no advantage in waiting beyond that age.

The chart below illustrates the relationship between birth year and full retirement age, along with the percentage of PIA retired workers receive at ages 62 and 70.

Data source: The Social Security Administration.

The table illustrates that delaying the claim of Social Security can result in a significant increase in benefits. For example, retirees born in 1960 or later can see their payout increase by 77% by waiting until age 70 to claim rather than starting at age 62.

Consider this scenario: a worker born in 1960 has a primary insurance amount of $2,000. If they claim at age 62, they would receive $1,400 per month, but if they wait until age 70, their benefit would rise to $2,480 per month. This represents a 77% increase. While actual amounts vary based on individual earnings, the percentage gain remains the same for all.

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