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Regardless of whether you’re already retired or just entering the labor force, Social Security income is liable to play an important role in helping you make ends meet.

For more than two decades, national pollster Gallup has been surveying Americans to gauge their current or expected reliance on America’s top retirement program. Between 80% and 90% of retired Americans note that their Social Security benefit accounts for a “major” or “minor” source of income. Meanwhile, 76% to 88% of future retirees expect to need their Social Security income, in some capacity, to cover their expenses.

In other words, getting as much out of Social Security as possible will be vital to the financial well-being of generations of future retirees. But in order to maximize what you receive, you’ll first need to understand the ins and outs of how your Social Security benefit is calculated, as well as how your claiming age can meaningfully impact how much you’ll receive each month and during your lifetime.

Image source: Getty Images.

Social Security benefits are calculated using these four factors

America’s top retirement program has a number of quirks, including the potential to be taxed at the federal and state level on your benefits, and the possibility of being penalized for taking your retired-worker benefit early. But when chiseled down to the basics, there are four factors the Social Security Administration (SSA) will use to calculate your monthly benefit:

Earnings history
Work history
Full retirement age
Claiming age

Generally, the more you earn, on average, the larger your Social Security check will be during retirement. The SSA accounts for your 35 highest-earning, inflation-adjusted years when calculating your monthly benefit. The catch is that for every year less of 35 worked, the SSA will average a $0 into your calculation. If you want any chance at maximizing your monthly payout from Social Security, you’ll need to work at least 35 years.

The third factor, your full retirement age, is completely out of your control. It’s determined by the year you’re born and represents the age when you become eligible to receive 100% of your retired-worker benefit. Eligible beneficiaries born in 1960 or later will have a full retirement age of 67.

The all-important fourth factor used to calculate your Social Security benefit is your claiming age. While earning more and working longer has the potential to increase your Social Security check, deciding when to begin receiving your benefit can really swing the pendulum.

The interesting thing about Social Security claiming decisions is that the SSA encourages retirees to be patient. For every year an eligible beneficiary holds off taking their benefit, beginning at age 62 and continuing through age 69, their monthly check can grow by up to 8%, as seen in the table below.

Birth Year
Age 62
Age 63
Age 64
Age 65
Age 66
Age 67
Age 68
Age 69
Age 70







1960 or later

Data source: Social Security Administration. Table by author.

What’s the average Social Security benefit at age 65?

Something else that likely stands out from the table above is just how much your monthly benefit can change depending on your ability and/or willingness to wait.

Future retirees born in or after 1960 who choose to receive their benefit as early as possible could see their monthly payout permanently reduced by as much as 30%. Conversely, waiting a full eight years, post-eligibility, to claim your payout has the potential to increase your monthly payout by 24% to 32% above and beyond what you’d have received at full retirement age, depending on your birth year.

It’s trade-offs like this that have a lot of retired workers choosing a middle-ground approach. In 2022, age 65 was the fourth most-popular claiming age, behind ages 66, 62, and 67, in that order.

Just how big of a Social Security check is the average retired-worker beneficiary bringing home at age 65? According to data from the SSA, as of December 2022, the 1,389,007 retired-worker beneficiaries receiving a monthly check brought home an average of $1,504.98, which works out to annual run-rate of roughly $18,060. Though the average monthly payout at age 65 is more than 15% higher than the average Social Security check at age 62, it’s also 23% lower than the average retired-worker benefit at age 70.

Age 65 has historically been a popular claiming age, primarily because it was the program’s full retirement age for decades. Persons born in 1937 or earlier have a full retirement age of 65. Even though it no longer represents the program’s full retirement age, age 65 is still viewed as a middle-ground compromise that allows beneficiaries to wait a few years while minimizing the permanent reduction to their monthly payout.

Unfortunately, this middle-ground approach may be doing more harm than good for a majority of retired workers.

Image source: Getty Images.

The data doesn’t lie: Early filers are facing an uphill battle

As noted previously, beneficiaries can be penalized for taking their payout prior to reaching their full retirement age. In addition to a permanently reduced monthly payout, they may also be subjected to the retirement earnings test.

The retirement earnings test allows the SSA to withhold some or all of a retired worker’s benefits based on how much they earn. Though the retirement earnings test is no longer applicable once a worker reaches their full retirement age, it can nevertheless surprise some early filers who believed they’d be able to generate a separate source of income while they worked.

The bigger issue is that a comprehensive study on Social Security retired-worker claims found that early filers are facing an uphill battle.

In 2019, United Income published the results of a study that examined the claiming decisions of 20,000 retired workers using data from the University of Michigan’s Health and Retirement Study. The purpose of this research was to determine if these beneficiaries made an “optimal” claiming decision. In other words, researchers extrapolated these claims to see if beneficiaries generated the highest possible lifetime income given their selection.

What United Income discovered was that actual claiming decisions and optimal selections were almost perfect inverses of one another. While most claimants chose to begin receiving their Social Security benefit prior to reaching full retirement age, an overwhelming majority of recipients would have generated the highest lifetime income by waiting until or after their full retirement age.

More specifically, United Income found that 57% of claimants would have made an optimal choice by waiting until age 70. Collectively, more than eight out of 10 retirees would have generated the highest lifetime income from Social Security by waiting until ages 67 through 70.

By comparison, only a small single-digit percentage of claimants examined by United Income would have made the correct choice by taking their benefit at age 65. While there are situations where a middle-ground claim can make sense, based on your health and marital status, the data pretty conclusively shows that waiting until your full retirement age, or later, is going to be beneficial to a majority of future retirees.

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