For the average retired worker, Social Security income isn’t a luxury. It represents a financial foundation that they’d struggle to live without.

As of 2023, the Center on Budget and Policy Priorities estimated that Social Security pulled 22 million people, including 16.3 million adults aged 65 and over, above the federal poverty line. A separate study of retirees by national pollster Gallup in April 2024 found that 88% of respondents relied on their payout, in some capacity, to cover their expenses.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

The financial well-being of retirees is, in some instances, dependent on getting as much as possible out of Social Security. But in order to maximize what they’ll receive, retirees first need to understand the nuts-and-bolts of how their benefit is calculated, as well as fully comprehend how much their claiming age can shift monthly and lifetime payouts.

There’s a big difference between collecting benefits as early as possible (age 62) and waiting till the tail-end of the traditional claiming range (age 70).

Image source: Getty Images.

Four variables are used to calculate your monthly Social Security check

America’s leading retirement program is, admittedly, not the easiest to understand at times. However, the four variables used by the Social Security Administration (SSA) to calculate how much you’ll receive each month as a retired worker are quite direct:

• Work history
• Earning history
• Full retirement age
• Claiming age

To determine how big your monthly Social Security check will be during retirement, the SSA accounts for your 35 highest-earning, inflation-adjusted years when making its calculation. Your earnings history is all about “earned income,” which includes wages and salary, but not investment income. Generally, if you’ve earned a higher average wage or salary throughout your lifetime, you’ll receive a beefier retired-worker benefit check from Social Security.

The asterisk to this calculation is that the SSA will penalize you by averaging in a $0 for every year less of 35 worked. Workers who have any hope of maximizing what they’ll receive from Social Security will want to work at least 35 years, if not more.

The third element, full retirement age, represents the age you become eligible to receive 100% of your monthly retired-worker benefit. Full retirement age is based entirely on the year you’re born, and is therefore not a factor you have any control over.

On the other hand, claiming age can swing the payout pendulum more than any other variable, and you do have the choice of when to begin initially collecting benefits. Although retired workers can start collecting their Social Security check as early as age 62, there’s a financial incentive to exercise patience. For every year a worker waits to collect, beginning at 62 and continuing until age 70, their payout can grow by up to 8%. This time-versus-payout dynamic is shown in the following table.

Data source: Social Security Administration.

There are clear-cut advantages and drawbacks associated with collecting benefits at 62 and 70

Despite the wide variance in percentages in the table above, there are advantages and drawbacks associated with every claiming age within the traditional initial collection range of 62 through 70.

Let’s take a closer look at these pros and cons for the two polar opposites of the traditional claiming range: 62 and 70.

Age 62

The obvious advantage of collecting at 62 is not having to wait to get your hands on your benefit. This can be particularly attractive for retirees who aren’t working/don’t have a source of income, or are looking to pay down debt.

Additionally, the earliest filers may be looking to front-run expected cuts to Social Security checks in as little as eight years. The Old-Age and Survivors Insurance Trust Fund (OASI) is forecast to exhaust its asset reserves by 2033. If the OASI’s asset reserves run dry, retired workers and survivor beneficiaries would endure sweeping benefit cuts of up to 21%.

On the other hand, initially collecting retired-worker benefits at 62 means accepting a permanent monthly payout reduction ranging from 25% to 30%, depending on your birth year.

Furthermore, early filers can be exposed to the retirement earnings test, which allows the SSA to withhold some or all of your benefit if you earn above select income thresholds.

Age 70

At the other end of the spectrum, waiting to collect at age 70 ensures you’ll have maximized your monthly payout from Social Security. Depending on your birth year, you’ll receive anywhere from a 24% to 32% increase from what you’d have received at your full retirement age.

The potential downside is there’s no guarantee you’ll live long enough to also maximize your lifetime income by claiming at 70.

With a more thorough understanding of why retirees choose to initially collect benefits at these two ages, let’s return to the question at hand: Is it better to collect your retired-worker benefit at 62 or 70?

A detailed study released six years ago can directly tackle this question.

Image source: Getty Images.

One claiming age is statistically superior to all others

In 2019, the researchers at online financial planning company United Income released a comprehensive report (The Retirement Solution Hiding in Plain Sight) that extrapolated the Social Security claiming decisions of 20,000 retired workers using data from the University of Michigan’s Health and Retirement Study.

The goal for United Income was simple: to determine how many retired workers made optimal claiming decisions. In this sense, “optimal” refers to the claiming age that generated the highest lifetime income for retirees.

The study’s first conclusion wasn’t a surprise: only 4% of retired-worker beneficiaries had optimized their payout.

This exceptionally low figure is, in part, due to none of us knowing our “expiration date” ahead of time. Without knowing when our time is up, there’s always going to be some degree of educated guessing/luck involved when choosing the best possible initial collection age.

Furthermore, everyone has different variables they need to consider when deciding which initial claiming age makes the most sense. Factors such as access to retirement accounts, income needs, tax implications, marital status, and personal health all weigh into the Social Security claims process, and will be unique to every individual.

There was, however, one finding in United Income’s study of the utmost importance. Specifically, researchers noted a clear inversion between actual and optimal claiming ages.

For example, 79% of the 20,000 retired workers studied began receiving their Social Security check at ages 62, 63, or 64. But when extrapolated by researchers, only 8% of combined claims at 62, 63, and 64 would have proved optimal. In other words, very few early filers got as much as possible out of Social Security.

In comparison, even though only a small percentage of the retired workers studied initially took their payout at age 70, it would have proved optimal for 57% of the 20,000 retirees analyzed. The probability of age 70 optimizing lifetime Social Security benefits was many multiples higher than any other age in the traditional claiming range.

To be clear, United Income’s study doesn’t mean that 100% of all future retirees should wait until they’re 70 to collect their Social Security check. Lower-earning spouses, aging Americans without a source of income, and workers with one or more chronic illnesses that could shorten their life span, all have good reason to collect their payout well before age 70.

But when looking at the tens of millions of workers who’ll become eligible for a Social Security check in the years and decades to come, statistically, most would maximize their lifetime income by exercising patience.

The $22,924 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

View the “Social Security secrets” »

The Motley Fool has a disclosure policy.