Social Security retirement benefits are an essential part of most retirees’ income planning. The majority of retirees say Social Security is a major source of income for them. It is the primary source of income for half of older adults, according to the Social Security Administration. And for 40% of older Americans, it is their only source of income.
Deciding when to claim Social Security retirement benefits is one of the most crucial financial decisions you will make. Claiming benefits at the wrong time costs Americans $111,000 per household, according to a study. However, the rules governing Social Security are complex and confusing, and reliable information can be hard to come by. Furthermore, once you file a claim for benefits, you have limited chances to go back if you realize you’ve made a mistake.
In this post, we will look at the basic rules that define how your Social Security retirement benefits are calculated, discuss the advantages and disadvantages of claiming early or later, and describe what is the best time for most people to claim, according to research.
How Are Social Security Retirement Benefits Calculated?
The Social Security Administration calculates your benefits based on what you earned from jobs in which you paid Social Security taxes. The SSA takes the highest 35 years of earnings and bases your benefit on those earnings. The basic process is:
- The SSA tabulates the earnings it has on file for you for each year of your employment
- The SSA indexes the earnings each year to bring them up to the general wage levels in the year in which you turn 62. This page shows two examples of how the SSA indexes earnings. This page lets you choose a year and lists the indexing factors for each of the years prior to that.
- The SSA chooses the 35 years with the highest indexed earnings.
- The SSA totals your indexed earnings over those 35 years and divides by 420 (the number of months in 35 years) to get your Average Indexed Monthly Earnings (AIME).
- The SSA then applies a series of formulas to your AIME to arrive at your monthly retirement benefit, known as the Primary Insurance Amount (PIA). In 2025, the formulas are as follows:
Monthly benefit (PIA) equals
- 90% of the first $1,226 of average indexed monthly earnings, plus
- 32% of earnings between $1,226 and $7,391, plus
- 15% of earnings above $7,391
For example, take a worker whose total indexed earnings for their career were $2.5 million. Their AIME then is $5,952.38 ($2.5 million divided by 420 months).
If they become eligible for Social Security in 2025, then the SSA calculates
- 90% of monthly earnings up to $1,226 = $1,103.40
- 32% of earnings between $1,226 and $7,391. For this worker, these earnings were $5,952.38 – $1,226 = $4,726.38. Multiplying this amount by 32% gives $1,512.44.
- 15% of earnings above $7,391 ($0 for this worker)
The sum of $1,103.40 and $1,512.44 is $2,615.84. The SSA rounds down to the nearest 10 cents, so this worker’s PIA is $2,615.80.
The dollar amounts in these formulas are sometimes called bend points because the graph of PIA vs. AIME bends at these dollar amounts. The bend point dollar amounts often change from year to year.
Source: Social Security Administration
The reason for the bend points is that Social Security is intended to replace a larger percentage of earned income for lower-wage workers, so the PIA includes a larger percentage of lower earnings amounts and a smaller percentage of higher earnings.
What Determines Your Actual Retirement Benefit Amount?
However, your PIA isn’t necessarily the same as your actual Social Security retirement benefit. Your actual benefit depends on four factors.
Two of the factors are your work history and earnings, as we just described. If you have fewer than 35 years of earnings, the SSA enters $0 for the years in which you had no earnings.
The two other factors are your birth year and your age when you claim benefits.
Your birth year determines your full retirement age, which is the age at which you are entitled to 100% of your Social Security benefit.
If you were born between 1943 and 1954, your full retirement age is 66. If you were born between 1955 and 1959, your FRA is 66 plus a certain number of months. And if you were born in 1960 or later, your FRA is 67. If you claim earlier or later than your FRA, your benefit is reduced or increased accordingly.
The chart below shows your full retirement age according to the year you were born.
| Year Born | Full Retirement Age (FRA) |
| 1943-1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
The age at which you claim benefits has a huge impact on the amount of your benefits. You can claim benefits as early as age 62 or wait until age 70 or later. If you claim earlier than your full retirement age, though, your benefit is reduced.
If you claim at age 62 and were born in 1960 or later, you get 70% of your full benefit. This chart shows the percentage of your full benefit you receive if you claim early.
If you claim later than your full retirement age, your benefits are increased. As shown on this page, if you were born in 1943 or later, your benefits increase by 8% for each year you delay filing for benefits past your full retirement age, up to age 70. There is no further increase after age 70.
The chart below shows the percentage of your full benefits you would receive by claiming at certain ages. It assumes you were born in 1960 or later.
| Age When Claiming Benefits | % of Full Benefits |
| 62 | 70.0% |
| 63 | 75.0% |
| 64 | 80.0% |
| 65 | 86.7% |
| 66 | 93.3% |
| 67 | 100.0% |
| 68 | 108.0% |
| 69 | 116.0% |
| 70 | 124.0% |
The SSA’s online calculator shows the effect on your benefits of claiming early or delaying.
Breaking Even
By waiting to claim your benefits past age 62 or even past your full retirement age, you forego receiving benefits for several years, but your monthly payments are higher than for someone who claimed earlier. While that person is receiving monthly checks, you receive nothing for several years. But your benefits, when you start receiving them, are higher.
So, how long would it be until you have received the same total amount of money as someone who claimed earlier? It can take a while until you break even. For example, compared to someone who filed at age 62:
- If you file at age 65, you will break even at age 75 years and 11 months
- If you file at age 67, you will break even at age 77 years
- If you file at age 70, you will break even at age 78 years and 9 months
There are online calculators to help you determine the breakeven age for various situations.
If you file for benefits and then change your mind, you may be able to withdraw your claim within 12 months after you start receiving benefits. You must pay back any benefits you have already received. You can then reapply for benefits at a later date. However, you can only do this once.
Why is 70 the Best Age for Most People to Apply for Benefits?
The best age to claim benefits depends on your individual situation. Your financial status, health, and life expectancy all affect the answer. There are valid reasons both for claiming benefits early and for delaying. However, for the majority of retirees, research finds that 70 is the optimum age to file for benefits.
Only 4% of retirees wait until age 70 to claim Social Security, but 57% of retirees would receive the most money over their lifetimes by claiming at that age. This is according to a 2019 study by United Income, a financial planning company that examined data for around 20,000 people from the University of Michigan.
The study found that the next best ages to file for benefits were 67, 69, and 68. More than 80% of the people studied would have done best to wait until their full retirement age or later to claim benefits. However, most people claim earlier: about 70% of retirees file for benefits before age 64.
Another study in 2022 found that more than 90% of people should wait until age 70 to claim benefits, even though only 10% of retirees wait that long. According to the study, retirees give up $182,370 in lifetime benefits by claiming early.
Here are some advantages to waiting until age 70 to file for Social Security:
- Increases your total benefits by 25% or more over your lifetime
- Provides a form of longevity insurance – a major concern for many retirees is outliving their money
- Increases spousal benefits compared to filing earlier
More than half of retirees in their 70s and 80s could increase their incomes by more than 25%, simply by filing for benefits at the right time.
Will Social Security Still Be There When I’m Ready to Claim?
It’s not a secret that Social Security is facing insolvency in 2035. This is according to the 2024 report issued by the Congressional Budget Office. Insolvency means that Social Security will be unable to pay benefits in full and on time. It does not mean that Social Security will disappear or be unable to pay any benefits.
Estimates are that Social Security would be able to cover about 80% of benefits if nothing is done. Retirees might find their benefit checks are reduced or receive the full amount but later than scheduled.
The cause is mainly demographic: As the U.S. population as a whole gets older, there are more people receiving retirement benefits and fewer people paying Social Security taxes. Also, retirees are living longer, and birth rates are declining, so the number of workers paying into the system is decreasing.
The fear of missing out is one major reason many people claim benefits early. They’re afraid Social Security will not be there later if they wait.
According to most experts, this fear is unfounded for most retirees.
Although the Social Security commissioner and other authorities are confident that a solution will be implemented, they believe large-scale benefit cuts are unlikely, especially for lower-income retirees.
Among the fixes that have been proposed, according to a report by the American Academy of Actuaries, are:
- Gradual increases to the full retirement age
- Reductions to the annual cost-of-living adjustment
- Increases in taxes, such as raising the tax rate and eliminating the taxable maximum
Another possible fix is providing Social Security with supplemental revenue from the general government treasury.
Higher-income individuals and households, however, could see a reduction in their Social Security benefits. For example, the Congressional Budget Office in 2022 proposed adding more bend points to reduce the PIA for higher-income retirees. Meanwhile, a solution included in the American Academy of Actuaries report is to apply a means test to reduce or eliminate benefits for retirees with large incomes or assets.
Of course, no one knows what will eventually happen. With a popular and politically sensitive program like Social Security, the most popular solution seems to be to do nothing. In the 1980s, Social Security also faced a shortfall, which Congress finally addressed when the program was within weeks or months of being unable to pay full benefits on time.
You might consider consulting a financial advisor on how best to prepare and also petition your lawmakers to address the coming Social Security shortfall. The sooner the problem is fixed, the less drastic changes will be needed.
How About Claiming Early and Investing the Proceeds?
Some financial advisors and personalities, most notably Dave Ramsey, suggest claiming Social Security benefits at age 62 and then investing the money in stocks or a mutual fund. By investing your check each month, the theory goes, you can get a greater lifetime return than by claiming later, even if the amount of your checks will be higher.
It sounds good in theory: over the last 30 years, the S&P 500 has returned a compound average of 10.7% per year, which is greater than the five to eight percent increase in your benefit that you get by waiting.
But do the numbers work out? Some people have taken a close look.
Devin Carroll of Social Security Intelligence pointed out that the difference in monthly benefits between claiming at age 62 and at age 67 is $662. In order to receive a monthly payout of $662, he says, you’d need to invest $160,000 and get an annual return of 21%.
Meanwhile, the difference in monthly benefits between claiming at age 62 and at age 70 is $1,265. To get this monthly amount, you’d need to invest more than $300,000 with an annual return of 17%.
Also, as he stated, the increase in Social Security benefits gained by waiting is completely risk-free. However, to achieve returns of 17% or 21%, you’d need to take on significant risk. There is a big chance you won’t achieve these returns year in and year out. You might even lose money.
This was also the point made by Jesse Cramer of Best Interest. He examined three hypothetical cases:
- investing Social Security funds in a savings account
- investing in a mixture of stocks and bonds with average annual returns
- investing in the same mixture but with subpar returns for the first few years
The results:
If you claim early and invest in a savings account, you come out ahead only if you pass away at or before age 77. Most 62-year-olds will live beyond that age.
If you invest in a mixture of 60% stocks and 40% bonds, which has returned an average of 9.3% per year since 1950, you come out ahead if you pass away before age 88. This is the majority of 62-year-olds, as he said.
So it’s advantageous to claim Social Security early and invest the proceeds? Not so fast.
He also looked at a third scenario. What if you have substandard returns for the first few years? A 60/40 stock-bond mixture has had multiple 10-year periods with returns of less than 2% per year. What if you start investing during one of those periods? This is known as sequence risk. In that case, you only come out ahead if you pass away before age 75.
So, by taking benefits early and investing them, you are betting that the stock and bond markets will provide historical average returns. Meanwhile, the increase in Social Security benefits that is gained by waiting comes with no risk.
His conclusion: “There is no net benefit to taking Social Security early to invest it.”
What Are Some Reasons to Claim Early?
For the majority of retirees, research shows they can maximize their lifetime benefits by filing at age 70. But there are some situations in which it’s beneficial to claim earlier.
For example, if your personal or family health history leads you to believe you have a shorter-than-average life expectancy, you might consider claiming early.
Another situation is if Social Security funds are needed to meet living expenses or to keep you from having to liquidate investments during a down market. The majority of people retire unexpectedly – for health reasons, caregiving responsibilities, or job loss. In those cases, claiming Social Security early may supplement your savings and help give you a more comfortable retirement.
A third situation, as we described earlier, is if you’re a higher-income retiree and you think your benefits might be cut if you wait until later to claim. While most proposals to fix Social Security feature higher taxes or reductions in benefits to younger people, there could be reduced payouts to current retirees with higher incomes or significant personal assets.
If you want help in finding the best Social Security claiming strategy for your situation, SSA Tools offers free guides and online tools. Maximize My Social Security is a tool developed by Dr. Lawrence Kotlikoff, one of the nation’s foremost experts on Social Security. It helps you compare different claim dates to enable you to get the most benefits.