Many of us wonder when the “best” time is to start claiming Social Security benefits. Should you take them early at 62, wait until your Full Retirement Age (FRA), or hold out until 70 for the maximum payment? It’s a big decision, and understanding your “breakeven point” can help you make an informed choice.
What is the Breakeven Point?
Simply put, your Social Security breakeven point is the age at which the total cumulative benefits you receive by delaying your claim catch up to and then surpass the total cumulative benefits you would have received by claiming earlier.
Think of it as the point where waiting pays off!
Let’s look at a hypothetical example (based on a real Social Security statement):
For someone whose estimated benefits are:
- $2,414/month at age 62
- $2,600/month at age 63
- $2,804/month at age 64
- $3,066/month at age 65
- $3,332/month at age 66
- $3,599/month at Full Retirement Age (67)
- $3,822/month at age 68
- $4,144/month at age 69
- $4,567/month at age 70
Here’s when delaying benefits starts to “break even” in terms of total money received, comparing various later claiming ages against starting at age 62:
- Delaying from Age 62 to Age 63:
- It takes approximately 13 years after you start receiving benefits at age 63. You’d “break even” around age 76.
- Delaying from Age 62 to Age 64:
- It takes approximately 12 years and 5 months after you start receiving benefits at age 64. You’d “break even” around age 76 years and 5 months.
- Delaying from Age 62 to Age 65:
- It takes approximately 11 years and 1 month after you start receiving benefits at age 65. You’d “break even” around age 76 years and 1 month.
- Delaying from Age 62 to Age 66:
- It takes approximately 10 years and 6 months after you start receiving benefits at age 66. You’d “break even” around age 76 years and 6 months.
- Delaying from Age 62 to Full Retirement Age (67):
- It takes approximately 10 years and 2 months after you start receiving benefits at age 67. You’d “break even” around age 77 years and 2 months.
- Delaying from Age 62 to Age 68:
- It takes approximately 10 years and 3 months after you start receiving benefits at age 68. You’d “break even” around age 78 years and 3 months.
- Delaying from Age 62 to Age 69:
- It takes approximately 9 years and 9 months after you start receiving benefits at age 69. You’d “break even” around age 78 years and 9 months.
- Delaying from Age 62 to Age 70:
- It takes approximately 8 years and 11 months after you start receiving benefits at age 70. You’d “break even” around age 78 years and 11 months.
Why is this important?
- Longer Life Expectancy: If you anticipate living well into your 80s or beyond, delaying your benefits often leads to a significantly higher total lifetime payout, as well as a larger guaranteed monthly income.
- Financial Security: A higher monthly benefit can provide greater financial stability in your later years, helping to cover increasing healthcare costs or daily expenses.
- Survivor Benefits: If you’re the higher earner in a couple, delaying can also increase the survivor benefits your spouse might receive after your passing.
When Does Taking Social Security Early Make Sense?
While breakeven points often favor delaying for a higher lifetime payout, there are several very valid reasons why claiming Social Security benefits at age 62 or shortly thereafter might be the best decision for you:
- Health Concerns or Shorter Life Expectancy: If your health is declining or you have a family history of shorter lifespans, taking benefits early ensures you collect more over your lifetime, even if each payment is smaller. Waiting until your breakeven age might mean you collect less overall.
- Immediate Financial Need: If you are out of work, facing unexpected expenses, or simply need the income to cover your essential living costs, taking benefits early can provide a much-needed financial lifeline. It’s there as a safety net.
- No Other Retirement Income: If you have limited personal savings, no pension, or insufficient other retirement funds, Social Security might be your primary source of income in retirement. In such cases, claiming early may be necessary to maintain your standard of living.
- Desire for Early Retirement: For some, the desire to retire early outweighs the benefit of a higher future Social Security check. If you have other resources to bridge the gap or are comfortable with the reduced benefit, early claiming allows you to leave the workforce sooner.
- Spousal Strategies: In some married couples, a “split strategy” might involve one spouse (often the lower earner) claiming benefits early to provide immediate income, while the other spouse (often the higher earner) delays their benefits to maximize their own, and potentially a future survivor’s, benefit. This can optimize the total household benefit over the long run.
- Disability or Inability to Work: If health issues prevent you from continuing to work, claiming Social Security early (or exploring disability benefits) can provide vital income when you can no longer earn.
What if Social Security benefits are cut in the future?
This is a valid concern! Current projections suggest that if no legislative action is taken, benefits could be reduced (e.g., to around 83% of scheduled benefits) by the mid-2030s.
However, here’s a crucial point: the breakeven ages generally remain the same even with a proportional cut. This is because the percentage difference between claiming ages stays consistent. Even with a cut, a higher starting benefit (from delaying) will still result in a larger absolute dollar amount than a lower starting benefit.
The Bottom Line:
The decision of when to claim Social Security is deeply personal. While breakeven points provide valuable insight, also consider your personal health, other retirement income sources, and your immediate financial needs.
Understanding these numbers empowers you to make the best choice for your retirement.
