Many Americans don’t wait much longer than necessary before starting to collect Social Security benefits.
Most people don’t become eligible until age 62, and taking advantage as early as possible can often help them start retirement sooner. Social Security is an important source of retirement income for the majority of older Americans, according to an annual Gallup poll. Without it, retirees may not have enough to make ends meet.
But filing at age 62 often results in lower Social Security income in the long run. Additionally, many retirees may find that their Social Security benefit at age 62 isn’t quite as much as they need to live on. Therefore, it may be worth waiting a few years before claiming Social Security benefits.
Understanding how the Social Security Administration calculates your monthly benefit will help you understand how tapping into it as soon as possible can impact your retirement budget. And that impact shows up in the numbers for average Social Security benefits at age 62 compared to the average retiree.
How the government calculates your Social Security benefits
Three main factors determine how much you receive in Social Security each month:
-
Your earnings record
-
Your full retirement age
-
Your eligibility age
The first step the Social Security Administration takes to determine your monthly benefit is to adjust your earned income for inflation each year. The 35 years with the highest income are then taken and the average is determined. If you haven’t worked for at least 35 years, the missing years are filled with $0 in earned income. Once your average monthly income is calculated, that number is plugged into the Social Security benefits formula to determine your primary insurance amount (PIA).
Your PIA is the amount you will receive if you claim Social Security in the month you reach your full retirement age. For those born in 1954 or earlier, your full retirement age was 66. For each year you were born after 1954, the full retirement age increases by 2 months until you reach age 67 for those born in 1960 or later.
The final factor that affects your monthly benefit depends on when you file your claim. As already mentioned, you can start claiming your pension benefits from the age of 62. However, if you claim pension benefits before your full retirement age, this will result in a reduction in your PIA. If you delay past your full retirement age, you will receive a later retirement credit for each month you wait until age 70. This is what it looks like for someone who has reached full retirement age of 67.
|
Specify age |
% of PIA received |
|---|---|
|
62 |
70% |
|
63 |
75% |
|
64 |
80% |
|
65 |
86.67% |
|
66 |
93.33% |
|
67 |
100% |
|
68 |
108% |
|
69 |
116% |
|
70 |
124% |
Data source: Social Security Administration. Author’s calculations.
Here is the average Social Security benefit at age 62
Sixty-two is the most popular age for claiming retirement benefits. According to the most recent data from the Social Security Administration, about 27% of new applicants for retirement benefits were between 62 and 63 years old when they applied in 2022.
The 565,887 retired workers who were 62 and receiving Social Security benefits in December 2022 received an average of $1,274.87 that month. That adds up to about $15,298 per year. By comparison, the average Social Security benefit for all retirees that month was $1,825.14 ($21,902 annually). Claiming benefits at age 62 will result in a significant reduction in benefits.
However, there are several good reasons to begin receiving benefits at age 62. One of them is that you have a disease that results in a shorter life expectancy than your peers. While CDC data says the average 62-year-old should wait until age 70 to maximize their lifetime Social Security benefits based on life expectancy, it doesn’t make sense if you might not even make it to age 70 .
Another good reason to claim early is that you simply need the money. If you have been forced to retire due to circumstances beyond your control, you may not have saved enough to live on. And even if you’re still looking for work, applying for Social Security at age 62 can be a lifeline. Importantly, there are ways to reverse your decision or mitigate the impact of an early claim if you end up having to go back to work.
Most people should try to wait as long as possible before applying for Social Security
Multiple studies and CDC life expectancy data suggest that age 70 is the optimal age for the average retiree to start claiming Social Security. Still, it remains one of the least popular age groups for claiming benefits, with fewer than 10% of retirees claiming at age 70 or later.
However, if you can wait a few years to retire, build up enough retirement savings in the meantime, and position yourself so that you won’t be able to start receiving retirement benefits until you’re 70 instead of 62, you’ll be on average in retirement be much wealthier. A 2019 United Income study found that 57% of retirees would maximize their chances of affording retirement if they waited until age 70.
On the other hand, only 8% of retirees would optimize their finances by claiming before age 65. The problem is that it’s really hard to know if you’re in that 8%. Unless you have reason to believe that you are very different from average, you should delay your achievements for as long as possible.
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“This Is the Average Social Security Benefit for Age 62” was originally published by The Motley Fool