Optimizing Social Security Benefits for the Average Social Security Beneficiary: Why Age 62 May Not Be the Best Option
Claiming Social Security benefits at age 62, the earliest possible age, may not be the best choice for Social Security beneficiary. (Photo: CNBC)
Maximizing Social Security Benefits: A Strategic Guide for Every Social Security Beneficiary
According to a Motley Fool article, many Americans rely on Social Security income to varying degrees during retirement, making it crucial to optimize this benefit. However, claiming Social Security benefits as early as age 62, the most popular claiming age among Social Security beneficiaries, may not be in the best interest of retirees. To understand this, it’s essential to grasp how Social Security benefits are calculated, considering factors such as work history, earnings history, full retirement age, and claiming age.
Your work history and earnings history are closely linked, as the Social Security Administration calculates your monthly benefit based on your 35 highest-earning, inflation-adjusted years of work. To maximize benefits as a Social Security beneficiary, it’s advisable to earn as much as possible annually and work for at least 35 years. Additionally, your full retirement age is determined by your birth year, and it’s the age at which you can receive 100% of your retired worker benefit as a Social Security beneficiary.
For those born in 1960 or later, the full retirement age is 67. The most significant factor influencing your Social Security benefit is your claiming age. Claiming benefits before reaching full retirement age results in a permanent monthly reduction of up to 30% while delaying claims can increase monthly benefits by as much as 24% to 32%, depending on your birth year. For those who choose to claim benefits at age 62, they accept a permanent reduction of 30% in their monthly payments, but they gain access to their benefits earlier. In 2022, nearly 25% of new retired-worker claims were made at age 62, with an average monthly benefit of $1,274.87, according to SSA data.
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Social Security Beneficiary: Navigating Early Claiming Challenges and Maximizing Lifetime Income
Two primary reasons prompt early claiming: personal health concerns and misconceptions about Social Security’s solvency. Some individuals with chronic health conditions that may shorten their life expectancy opt for early claiming, even though the exact date of passing is uncertain. Additionally, many people mistakenly believe that Social Security is at risk of running out of funding during their lifetime, even though it relies on established funding mechanisms.
Despite the historical popularity of claiming benefits at age 62, early filers who are Social Security beneficiary face challenges. In addition to the 30% permanent reduction, they may also encounter the retirement earnings test, which allows the SSA to withhold benefits based on their earnings. This test no longer applies once an individual reaches full retirement age, but it can affect early filers who continue to work
Overall, while age 62 may make sense for some due to health reasons, waiting until a later age typically results in significantly higher lifetime income from Social Security. Studies suggest that age 70 is often the optimal claiming age, maximizing lifetime benefits for the majority of retirees.
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